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Public company info - Kontafarma China Holdings Limited , 01312.HK
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Kontafarma China Holdings Limited, 01312.HK - Company Profile
Chairman Chai Hongjie
Share Issued (share) 5,589,000,000
Par Currency Hong Kong Dollar
Par Value 0.002
Industry Construction Materials
Corporate Profile Business Summary: The Group was principally engaged in the (i) manufacturing and sales of prescription drugs, including chemical drugs and prescribed traditional Chinese medicines in the PRC; (ii) operating of fitness centres and provision of consultation services for fitness and health activities, and operating of franchise business for royalty and service fee income; and (iii) manufacturing and sales of cement and clinker, trading of cement and provision of technical services. Performance for the year: The revenue of the Group for the year ended 31 December 2019 was approximately HK$1,482.3 million (2018: HK$2,093.7 million), representing a decrease of 29.2% as compared to the previous year. The profit for the year of the Group was approximately HK$65.2 million (2018: HK$71.5 million). The basic earnings per share amounted to HK0.65 cent (2018: HK0.60 cent). Business Review Medical, Pharmaceutical and Health Business 2019 was a year of drastic changes in the international environment and a year of domestic reforms conquering obstacles. It was also a critical year to promote high-quality development and overcome difficulties. The China’s economy advanced in spite of difficulties and insisted on promoting supply-side structural reforms to move forward with high-quality development. Meanwhile, 2019 was also a significant year for policies of the People’s Republic of China (the “PRC“) pharmaceutical market and the release of the new National Drug Catalog for Basic Medical Insurance, Work-Related Injury Insurance and Maternity Insurance* (《國家基本醫療保險、工傷保險和生育保險藥品目錄》), which had restructured the market landscape. The implementation of the new Pharmaceutical Administration Law of the People’s Republic of China* (《中華人民共和國藥品管理法》), the continuing propulsion of consistency evaluation of drugs and “4+7” procurement policy with target quantity, and the implementation of the policy of “DRGs” (Diagnosis Related Groups) posed tremendous challenges and at the same time produced vast opportunities for the pharmaceutical industry. After in-depth considerations in light of the above situation, the Group has made aggressive adjustments in various aspects such as market development and product layout and achieved remarkable results for its medical, pharmaceutical and health business. In terms of the Active Pharmaceutical Ingredients (“API”) segment, great market feedback and considerable orders were obtained for the newly developed products. In terms of the laboratory animal segment, the adjustment to the product structure was successful, and the profitability has been significantly improved. In terms of the generic medicine segment, breakthroughs were achieved in several provinces and autonomous regions, with very optimistic sales growth momentum. Looking back on this year, the reason why the Group achieved the results above is inseparable from the spirit of all the employees of the Group to defy any hardship, forge through formidable circumstances and overcome various difficulties. The Group will maintain this style and positive trend, and strive to achieve greater success. 1. Tongfang Pharmaceutical Group Co., Ltd* (同方藥業集團有限公司) (“Tongfang Pharmaceutical”) Tongfang Pharmaceutical is principally engaged in the production and sales of chemical generic medicine with 30,000 square meters of drug production workshops in Yanqing District, Beijing. Its key products are prescription drugs and its therapeutic areas mainly include drugs for local anesthesia and gynecological purposes. For the year ended 31 December 2019, the revenue of Tongfang Pharmaceutical amounted to RMB318.6 million, representing a growth of 34.0% as compared to RMB237.7 million for 2018. For the year ended 31 December 2019, the gross profit of Tongfang Pharmaceutical amounted to RMB285.3 million, representing a growth of 34.1% as compared to RMB212.7 million for 2018. Facing a diverse and complex external environment and significant pressures and challenges in 2019, Tongfang Pharmaceutical implemented a series of effective measures to increase the corporate competitiveness such as developing new products, cultivating talents, reinforcing the scientific manufacturing level and strengthening internal control. In 2019, Tongfang Pharmaceutical’s new product, Jing You Neng* (精優能), was officially launched in the market and achieved good responses. Tongfang Pharmaceutical also introduced a number of professionals to add to various fields to comprehensively improve the overall quality of its products. Tongfang Pharmaceutical has been advocating the use of green energy and the photovoltaic power facilities were officially put into use in December 2019 after several years of construction and coordination. 1.8 million kilowatt-hours of electricity will be generated annually from solar photovoltaic power in the future, which not only meets the company’s use, but also contributes considerable electricity to the national grid. Tongfang Pharmaceutical continuingly reinforced the management and control of risks, and adjusted and improved various systems and processes. Tongfang Pharmaceutical also strengthened safety production education, carried out regular safety drills and implemented the safety production responsibility system. Throughout the year, Tongfang Pharmaceutical has passed various inspections for certifications, including the Good Manufacturing Practice (“GMP”) certification, High and New Technology Enterprise Certification* (高新技術企業認證), Beijing High-end Precise and Advanced Enterprise Certification* (北京市高精尖企業認證), Zhongguancun Gazelle Enterprise Certification* (中關村瞪羚企業認證) and several “unannounced inspections” by the National Medical Products Administration (“NMPA”). The cultivation of team and corporate culture had made remarkable results, and reforms and adjustments have been made to key departments, resulting in a more reasonable and optimized team deployment. Further, Tongfang Pharmaceutical increased its investment in research and development and constantly improved its product structure, eventually achieving a higher growth. 2. Shaanxi Unisplendour Life Care Pharmaceutical Co., Ltd.* (陝西紫光辰濟藥業有限公司)(“Shaanxi Life Care”) Shaanxi Life Care is principally engaged in business in the Chinese medicine-related fields, including the planting, manufacturing and distribution of Chinese medicines and operating a production facility in Baoji, Shaanxi. For the year ended 31 December 2019, the revenue of Shaanxi Life Care amounted to RMB68.0 million, representing a decrease of 7.6% as compared to RMB73.6 million for 2018. For the year ended 31 December 2019, the gross profit of Shaanxi life Care amounted to RMB37.0 million which remained steady as compared to RMB37.0 million for 2018. In 2019, under the proper leadership of the Group and with the joint efforts of the management and all employees, Shaanxi Life Care vigorously improved the quality level and management level, and awards were successively won throughout the year, including the Outstanding Qin Medicine Enterprise in Shaanxi* (陝西傑出秦藥企業), the Premium Product in Shaanxi Province* (陝西省優勢產品) awarded to its Shugan Kuaiwei Pills* (舒肝快胃丸), the May 1st Labour Medal* (五一勞動獎章) of Baoji City awarded to its general manager, the title of the Advanced Grassroots Party Organization* (先進基層黨組織) awarded to Shaanxi Life Care’s party branch, and the titles of the Most Beautiful Craftsman Award* (最美工匠獎) and the Excellent Party Member* (優秀共產黨員) received by several employees. Shaanxi Life Care passed all the GMP inspections, unannounced inspections by NMPA and inspection for the High and New Technology Enterprise Certification* (高新技術企業認證) for 2019. Shaanxi Life Care also received numerous support from the Department of Industry and Information Technology of Shaanxi Province due to environmental protection measures such as water saving and coal to gas conversion. Shaanxi Life Care has formulated a capacity improvement plan for 2020 and begun to implement it to strive to achieve its overall uplift in the near future. 3. Chongqing Kangle Pharmaceutical Co., Ltd.* (重慶康樂製藥有限公司) (“Chongqing Kangle”) Chongqing Kangle is principally engaged in the research and development, production and sales of API and intermediate API in Chongqing Changshou Chemical Industrial Park. For the year ended 31 December 2019, the revenue of Chongqing Kangle amounted to RMB91.0 million, representing an increase of 40.2% as compared to RMB64.9 million for 2018. For the year ended 31 December 2019, the gross profit of Chongqing Kangle amounted to RMB21.3 million, representing an increase of 62.6% as compared to RMB13.1 million for the 2018. In 2019, Chongqing Kangle fully launched its new product Hydroxychloroquine Sulfate in the market and entered into strategic cooperation agreements with domestic pharmaceutical companies, which allows it to achieve steady growth in the next few years. Since Chongqing Kangle is located within Changshou national Heavy Chemical Industrial Zone* (長壽國家重化工園區) in Chongqing, it is subject to relatively stringent regulation by the environmental protection, safety and other departments. In addition, due to its foreign certifications such as Current Good Manufacturing Practices (“cGMP”) and the World Health Organization (“WHO”), Chongqing Kangle is also subject to frequent examination, verification and audit procedures in a year, which, to a certain extent, will affect its production schedule. However, with extensive experience accumulated over the years in dealing with the above situation and minimizing the relevant impact, in 2020, Chongqing Kangle will continue to devote to research and development, introduction of new products, construction of ancillary facilities, environmental protection as well as safety to ensure its rapid growth in the future. 4. SPF (Beijing) Biotechnology Co., Ltd.*(斯貝福(北京) 物技術有限公司) (“SPF”) SPF is principally engaged in the supply of standardized laboratory animals and animal indigenous raw materials. For the year ended 31 December 2019, the revenue of SPF amounted to RMB63.8 million, representing an increase of 45.7% as compared to RMB43.8 million for 2018. For the year ended 31 December 2019, the gross profit of SPF amounted to RMB30.0 million, representing an increase of 19.1% as compared to RMB25.2 million for 2018. In 2019, SPF has successfully transformed its principal business from providing biopharmaceutical raw materials to providing high-quality laboratory animals, and the revenue from sales of laboratory animals accounted for more than 75% of its revenue in 2019, which has successfully pulled SPF back to a robust and safe track (the laboratory animal industry was categorized by the National Development and Reform Commission as an industry to which the State gives priorities in 2019). In 2019, SPF made more efforts in quality management, talents introduction and market expansion with several strains passing the Specific Pathogen Free test at the end of the year, which allows it to basically become the only company in the PRC that can provide a variety of Specific Pathogen Free laboratory animals. In addition, the purification platform and inspection platform built by SPF have also been put into use. In 2020, SPF will continue to make strategic improvements and achieve relatively significant breakthroughs in quality standards, market development and foreign cooperation. In 2019, one could only say that the pharmaceutical industry in the PRC had treaded cautiously. The “4+7” procurement with target quantity has been continuously expanded and carried out nationwide, resulting in an average decrease in the price of variety of product offerings of more than 50% with a maximum decrease of 96%. Under the implementation of consistency evaluation and continuous deepening coverage of the Third Phase of the Golden Tax Project* (金稅三期), the requirements for pharmaceutical enterprises have been gradually increased. Amid this situation, the Group’s medical, pharmaceutical and health business has reviewed its strategy, enhanced multi-dimensional resource commitments and strengthened the scientificity of control and management to cope with such severe situation. The unity of all employees of the Group with the spirit of defying any hardship in their way and bravely forging ahead is the most important factor to contribute to the success. 5. Apros Therapeutics, Inc. (“Apros”) Apros was incorporated in the United States in 2016. With the advancement of science and technology, the treatment of tumor has been developed from traditional surgery treatment, radiotherapy and chemotherapy to targeted therapy and immunotherapy. At present, tumor immunotherapy has become the most effective and popular research field, mainly using the innate immune systems to treat tumors based on the immunological principles. How to activate the immune system to enable itself to better identify the cancer cells has become a research focus in this field. Apros takes the regulation of innate immunity as the starting point, and selects Toll-like receptor (“TLR”) agonists with favourable biological foundation and druggability as the research target for further research and development. Apros has three global innovative and First-in-class small molecule TLR7 agonist projects. The three clinical candidate compounds have the same target and mechanism, while their molecular structures and indication populations are different. These projects are currently listed as major special scientific research projects in Beijing in 2020. Fitness Business According to the International Health, Racquet and Sportsclub Association Global Report 2019, by the end of 2018, health club membership had topped 183 million members around the globe, an increase of 9 million, representing a growth of 5% from the previous year. Industry revenue totaled an estimated US$94 billion in 2018 as compared to US$87.2 billion in 2017 and the club count exceeded 210,000 facilities, an increase of 10,000 over 2017. The WHO mentioned that most governments of the Asia-Pacific countries will continue to help their citizens to lead healthier lives as steady growth was recorded in 2018 in key markets around the region. It is considered that the fitness industry is on pace to reach its goal. The demand for high-quality fitness industry management education continues to soar in the PRC, and Asia in general. Visits to clubs during the event highlighted the capability of the region’s club owners to design and create fantastic spaces and business models, which rival any around the world. The revenue of the Group’s fitness business for the year ended 31 December 2019 was HK$303.9 million which includes a franchise income of HK$55.6 million (2018: HK$367.7 million (including franchise income of HK$57.2 million)). The profit for the year ended 31 December 2019 of the Group’s fitness business was HK$27.7 million (2018: HK$32.2 million). When the new management team took charge in May 2018, the Group’s fitness business had 9 clubs in Singapore and 13 clubs in Taiwan under the ”True Fitness” and “True Yoga” brands. The True Fitness clubs were “big box” gyms catering to the mid-market segment, offering affordable and accessible fitness options. The new management team had conducted a review of the fitness landscape in Asia and found that boutique gyms were emerging in different places and had been posing challenges to big box gyms. Members of big box gyms were also being lured away by new and exciting fitness offerings, as well as more personalized experiences that focused on community. We thus developed “TFX” to be our beach-head to re-assert and re-establish our position in the market. TFX would be our signature brand and its featured group exercise classes, indoor cycling, yoga, personal training and equipment have an edge over its competitors. TFX was designed to be unique and different in terms of its personalised space, product offerings, exterior and sensation, which highlight TFX’s boutique flavour. We also departed from the age-old practice of fitting out the clubs with the bulk of equipment from a single brand as we believed that despite the outstanding quality of the equipment of certain brands, they are not necessarily the best in everything. The new management team is passionate about fitness, and we went about hand-picking the best pieces from different brands to provide a truly curated fitness facility for our members. TFX has equipment from specialized brands that one typically sees in “CrossFit” boxes, strongman gyms, boxing gyms and calisthenics studios. The Taiwan operation of the Group’s fitness business positioning at the mid-high market already established as a premium operator brand in the market. The Taiwan operation currently has 12 fitness centres and 2 yoga centres. We took over a site of our competitor and created a premium yoga centre namely “Yoga Edition” which further differentiates us from our competitors. As the premium operator, the Group’s fitness business attracts higher tier members who can afford more secondary spending on personal trainings and other add-on services. The management is still exploring new locations in Tainan and Kaohsiung to strengthen our network, to make it as part of our commitment for expansion and to better serve our members. Cement Business For the year ended 31 December 2019, the Group’s revenue from the cement business amounted to HK$561.2 million (2018: HK$1,230.3 million), representing a decrease of 54.4% as compared to the corresponding period of the previous year. Such decrease was due to the recognition on net basis for revenue from trading of cement in this year. For the year ended 31 December 2019, the sales volume of the Group’s cement and clinker was 3,731,000 tons (2018: 2,797,000 tons), representing an increase of 33.4% as compared to the corresponding period of the previous year. Due to the impact of the regional production restriction for peak period and halt production for hazy weather, the cement and clinker production costs for the cement business of the Group have increased significantly as compared to the corresponding period of the previous year. However, the overall price of cement has also increased greatly, ensuring the interests of the cement business for the whole year. The Group adheres to the innovation in management and operation, unswervingly implementing the governance philosophy of “safety, environmental protection, high efficiency, low consumption and harmony”. The Group also benchmarks itself against leading industry enterprises, fosters its strengths while circumventing its weaknesses, lowers the costs and enhances the efficiency, to develop itself in the direction of smart plant, information management and green industry. Prospects: Medical, Pharmaceutical and Health Business The medical and pharmaceutical industry in the People’s Republic of China (the “PRC”) is increasingly challenging, with the determination of national medical reform being firm and strong. The Group had been confident to confront the market condition, adopt proactive measures and make adjustments accordingly, thereby making certain achievements. On the basis of steady progress in 2019, the Group will seize the historic opportunities and make major breakthroughs in 2020 by utilizing innovative thinking to drive development with a focus on new retail models, new product research and development, consistency evaluation, etc. Meanwhile, the Group will make scientific investment in facilities and equipment to ensure its development with efficient resource commitments. Finally, the Group will continue to make adjustments and improvements in respect of system construction and risk control, and capitalize on scientific management and control to facilitate its development, to ultimately achieve rapid development in 2020 and the next ten years. Further, as disclosed in the announcement of the Company dated 3 February 2020, Chongqing Kangle Pharmaceutical Co., Ltd.* (重慶康樂製藥有限公司) had been accredited by the National Medical Products Administration to manufacture the Active Pharmaceutical Ingredients (“API”) Chloroquine Phosphate, which has been tested and proved to have certain curative effect in combating the Pneumonia infected from the novel coronavirus (the “COVID-19”). Further, the API Chloroquine Phosphate has been included in the list of central medical reserve* (中央醫藥儲備) of the PRC. The Group considers that such achievement was resulted from the Group’s dedication to the research and development of new products with high quality. Fitness Business Singapore government statistics confirm overall demand is on the rise with annual fitness centres visits increasing from 1.8 million to 2.5 million in the five years to 2018. The Health Promotion Board has been quite aggressive in asking people to get fit, and pushing out programs that reward increased health. As a quarter of the country’s 5.7 million population are expatriates, wellness trends from the United States, United Kingdom and Australia, as well as other parts of Asia, are also diffusing into the market. One of the biggest challenges fitness operators face is the risk of copying, in a domestic economy characterized by caution to new ideas. In recent years, Taiwan government has actively promoted the development plan of the sports service industry, promoted the establishment of relevant laws and regulations, and improved the environment for the core industry of sports services. The Group will continue to promote the atmosphere of sports to increase the interest of public participation, and then expand the demand of the sports market. According to statistics of the Ministry of Finance of Taiwan, the number of Taiwan’s overall sports service providers has grown from 1,462 in 2013 to 1,835 in 2016, and has broken through to 2,040 in 2017. In terms of the overall revenue of the sports service industry, it increased from NT$21.44 billion in 2016 to NT$24.16 billion in 2017. The total consumption expenditure of Taiwan’s popular sports in 2017 was NT$126.22 billion, representing a significant growth trend over the previous year. The number of fitness centres and overall revenue have been rising year by year. With the increasing popularity of fitness, Taiwanese are more willing to invest funds and time to participate in sports and fitness than in the past, which then catalyzes the sports venue industry to actively develop towards a diversified business model. How to create business advantages, create high-quality sports space and services, and improve consumer loyalty to the brand will be important for our future development and expansion. Management is consistently monitoring the revolving situation of COVID-19 and constantly updates strict precautionary measures to ensure a safe environment for our members to continue their workout. The fitness industry has been advocating that it is important for individuals to continue to exercise to boost their immune system which is the most important element to counter the COVID-19. On 3 April 2020, Singapore government issued a “Circuit Breaker Policy” for the period from 7 April 2020 to 4 May 2020 (“Circuit Breaker Period”). On 21 April 2020, Singapore government extended the Circuit Breaker Period for additional four weeks to 1 June 2020. During this Circuit Breaker Period, non-essential businesses including our fitness centres were required to be closed. On the other hand, as of the date of this report, Taiwan government has not enforced a lock-down or indicated that it will do so as the situation in Taiwan is under control. While business carries on as usual during this period in Taiwan, we do face more challenges in setting up appointments for new members and see a trend for increase in request of membership suspension. Accordingly, revenue generated from operations in Singapore would be significantly impacted during the Circuit Breaker Period and revenue from new members in Taiwan would also be impacted. Cement Business In 2019, the cement production volume in the PRC was 2,330 million tonnes, representing a year-on-year increase of 6.1%. The discontinued production lines have been reactivated due to the highlighted profits in the cement market of some regions, leading to vicious competition in the local cement market. Since the overcapacity in the current cement industry has yet to be fundamentally resolved and the overall oversupply remained unchanged, the basis for stable operation of the industry is insecure. The entire industry shall adhere to the main line of supply-side structural reform, to promote the industry to accelerate its high-quality development. Since all sectors in the economic society suffered severely from the sudden outbreak of COVID-19 in early 2020, the PRC government has strengthened measures to stabilize economy while fighting the epidemic. Therefore, the growth rate of infrastructure investment is expected to recover. The regulatory control of the real estate market focuses on “stability”. Accordingly, the growth rate of real estate investment may experience a slowdown, while the cement demand for the year is expected to slightly decline. The year 2020 is the last year for implementing the Three-Year Blue Sky Defending Plan* (“打贏藍天保衛戰三年行動計劃”). The environment governance for atmospheric pollution will be continued and local regulatory control measures will be stricter, which will continue to contribute to supply reduction of the cement industry. Facing the pressure from upgrading of environmental protection, energy consumption quota, green mine renovation and policy uncertainties, the development of cement enterprises remains under pressure.

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