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On August 2, the Shenzhen Stock Exchange sent a regulatory letter to Lepu Medical.

The general meaning is that in May 2023, the company "privately" used 100 million yuan of raised funds to buy structured deposits without going through the review procedures, and deposited them for one month in violation of regulations. The amount accounted for 6.16% of the net amount of raised funds.

There are two knowledge points here:

First, under normal circumstances, only wealthy listed companies will buy financial products, and seeing financial products can reassure the company's financial situation; second, in 2023, bank financial products suffered losses across the board, and many listed companies suffered losses...

Xingkong Jun checked the company's annual report and found that the company's total funds used for financial management throughout the year amounted to 322 million yuan, with a total income of 3.09 million yuan. After a quick calculation, the average rate of return was less than 1%, which felt lower than the interest rate of current deposits.

By this calculation, the financial products purchased by the company were actually not cost-effective, but it received a regulatory letter because of this, which is really not worth it.

The company explained: after an internal investigation, the reason was that the staff misidentified the account and used the funds in the raised funds account when purchasing structured deposits. The board of directors of the company ratified the above-mentioned situation of using temporarily idle raised funds for cash management without review, and required the relevant departments of the company to attach great importance to it, and required the business personnel to learn the management and use system of raised funds, improve the professional ability of the business personnel, and prevent and eliminate similar situations from happening again.

1. Lepu Medical's performance

Lepu Medical's major shareholder is China Shipbuilding Industry Corporation 725 Institute, which is located in Luoyang (Luoyang Ship Materials Research Institute). It was formerly the Navy's 1929 Unit and is mainly responsible for the research and development of new ship materials.

On the official website of the 725 Institute, the first photo is of China’s first aircraft carrier: the Liaoning.

It is reported that Institute 725 is present in all kinds of new materials used in everything from the Liaoning aircraft carrier to the Jiaolong and then to manned space flight.

Ma Yupu, director of the 725th Institute, said in an interview: From the deep sea to space and back to land and sea, from stents of a few micrograms to 'stents' of over 100 tons, these are all scientific research results with our own intellectual property rights.

The stent weighing a few micrograms mentioned here refers to the vascular stent, which is produced by Lepu Medical.

Data source: Tonghuashun iFind

In 2023, the company achieved revenue of 7.98 billion yuan, a year-on-year decrease of 24.8%, and achieved net profit attributable to shareholders of the parent company of 1.26 billion yuan, a year-on-year decrease of 42.9%.

Among them, the medical device segment achieved revenue of 3.674 billion yuan, a year-on-year decrease of 37.5%.

Taking into account the particularity of the in vitro diagnostic business, after excluding the in vitro diagnostic business, the revenue of the instrument segment increased by 6.7% year-on-year; the pharmaceutical segment achieved revenue of 3.04 billion yuan, a year-on-year decrease of 11.5%. This was because the company chose to withdraw its bid due to the low price in the Jiangsu clopidogrel procurement in the second quarter of 2023, which resulted in a certain impact on the digestion of some inventory; the medical services and health management segment achieved revenue of 1.26 billion yuan, a year-on-year decrease of 2.4%. Excluding emergency-related income, the revenue of this segment increased by 6.5% year-on-year.

In the first quarter of 2024, the company achieved operating income of 1.922 billion yuan, a year-on-year decrease of 21.14%, and net profit attributable to shareholders of the parent company of 482 million yuan, a year-on-year decrease of 19.27%.

However, considering that there will still be special businesses in the first quarter of 2023, it is more reasonable to look at each sub-segment: the coronary artery intervention business achieved revenue of 440 million yuan, a year-on-year increase of 5.8%; the structural heart disease business achieved revenue of 110 million yuan, a year-on-year increase of 66.8%; the surgical anesthesia business achieved revenue of 140 million yuan, a year-on-year increase of 10.2%; the in vitro diagnostic business achieved revenue of 110 million yuan, a year-on-year decrease of 69.5%.

Overall, excluding the impact of in vitro diagnostic business, the company's core business is developing normally.

2. The capital chain is relatively tight

Lepu Medical's interest-bearing liabilities such as long-term and short-term loans and bonds payable on its books amount to approximately 4.7 billion yuan. After 2022, the company's long-term liabilities have increased year by year.

In 2023, interest expenses will exceed 170 million yuan, and the cost of using funds will be relatively high.

How to judge the level of interest expenses? In most cases, you can directly compare it with the company's net profit. If it exceeds 10% of the net profit, especially the non-net profit, the financing cost is relatively high.

Compared with the company's full-year net profit of 1.258 billion yuan, the company's interest expenses are not low.

Data source: Tonghuashun iFind

3. Let’s talk about centralized procurement

As long as it is related to medical treatment, there will inevitably be concerns about centralized procurement. If you win the bid for centralized procurement, your profits will be worrying; if you don’t win the bid for centralized procurement, whether your business can continue will be worrying.

Lepu Medical's core businesses are divided into two categories: pharmaceuticals and medical devices.

1. Impact of centralized drug procurement:

Lepu Medical's core products, atorvastatin calcium tablets and clopidogrel bisulfate tablets, won the bid in the first batch of expanded national procurement in 2019. The bid renewal work was then completed at the end of 2021, with a larger number of provinces winning the bid and a relatively mild price reduction.

In 2023, due to the price reduction of Jiangsu centralized procurement, the company's product bid loss caused certain fluctuations in performance. However, in 2024, the company's core products, clopidogrel bisulfate tablets and atorvastatin calcium tablets, won the bid in the Guangdong Alliance centralized procurement, with a price reduction of less than 12%, indicating that the price reduction has reached the bottom, and the company has basically achieved a smooth transition of drugs in the centralized procurement cycle.

2. Impact of centralized procurement of medical devices:

Lepu Medical's coronary metal stents and other medical devices have been included in the volume-based procurement since 2019, and the market price has dropped by 90%. Faced with the challenges of centralized procurement, the company has stepped up its innovation strategy, actively embraced the centralized procurement policy, and launched innovative products such as bioresorbable stents, drug-coated coronary balloon catheters, and cutting balloon systems.

In general, centralized procurement has a great impact on the company. In the future, the types and categories of drugs and medical consumables purchased may continue to expand. The company's existing products such as clopidogrel bisulfate tablets, atorvastatin calcium tablets and coronary heart stents have entered the centralized procurement. If the prices of new centralized procurement products are reduced, it may affect the company's profit release. At the same time, if the company fails to win the bid in the centralized procurement, it may lose a certain market share.