Modern Chinese Medicine Announces 2022 Intermediate Results; Develop the distribution network to seize industry opportunities

PERFORMANCE HIGHLIGHTS

  • The Group recorded consolidated revenue of approximately RMB 196.1 million for the six months ended June 30, 2022, an increase of approximately 14.1%
  • Gross profit increased 9.9% to RMB 86.4 million
  • Net profit increased by 13.1% to approximately RMB 49.9 million
  • The increase in revenue is mainly due to the increase in revenue generated from the sales of the vigor and vitality supplement pill, the anti-fever and detox pill and the additional ingredient Huoxiang Zheng Qi Pill
  • North-East, the PRC remains the leading contributor (55.7%) to the Group’s total turnover
  • The Group has currently established a distribution network for 83 distributors covering about 40 cities in the PRC

HONG KONG SAR – Media outreach – August 25, 2022 – Modern Chinese Medicine Group Co., Ltd. (“the Company” or “Modern Chinese Medicine”, together with its subsidiaries, the “Group”, HKEX stock code: 1643) announced their interim results for the six months ended June 30, 2022 (“the Period”). The Group has risen to the challenges posed by the COVID-19 pandemic and recorded remarkable growth. The group recorded consolidated revenue of approximately RMB 196.1 million for the six months ended June 30, 2022, an increase of approximately 14.1% compared to the corresponding year in 2021. The profit was around RMB 86.4 million, an increase of around 9.9% while the overall gross profit margin decreased slightly to around 44.0%. Profit attributable to owners of the Company increased to approximately $49.9 million for the six months ended June 30, 2022, an increase of 13.1%.

ACTIVITY REPORT

During the first half of 2022, the PRC struggled to contain the outbreak of the COVID-19 pandemic through closed cities. The implementation of an aggressive zero COVID policy, especially in Shanghai, has exerted a significant negative impact on the economy as a whole. Although the COVID-19 pandemic may have posed difficulties for the production and operation of some pharmaceutical companies, the industry as a whole is still experiencing solid growth with favorable support from various government policies for the promotion of Proprietary Chinese Medicine (“PCM”). industry. The COVID-19 pandemic has also brought to light the exceptional contribution of traditional Chinese medicine (“TCM”).

The Group is mainly engaged in the production of PCM, particularly over-the-counter and prescription drugs for use by middle-aged and elderly people in the PRC. As one of the leading companies, the Group currently has about 60 kinds of PCM products, with therapeutic effects for the treatment and/or alleviation of qi – deficiency state and blood stasis, cardio disease -cerebrovascular, digestive and gastrointestinal condition, gynecological condition, respiratory system condition and nervous system condition, etc. Some of the Group’s main products are believed to have the intended therapeutic effect for the treatment of symptoms of COVID-19 and/or a similar disease.

Well-established distribution network

Despite the complicated and difficult situation of the first half of the year, thanks to the experience acquired in dealing with the pandemic as well as the difficulties and challenges of the last two years, the Group has still managed to strategically expand its distribution network. The Group has currently established a distribution network for 83 distributors covering approximately 40 cities in the PRC, which are in turn serviced and administered by over 37 marketing staff with relevant experience in the TCM industry.

The distribution network would not only help geographically expand business operations from the Northeast and Huanan to other regions of the PRC, but also allow the group to penetrate a reasonably wide breadth in both the Northeast and Huanan, PRC, where the Group is strategically targeting given the Group’s established footprint and the large population therein. For the period, revenue contribution from Northeast and Huanan was approximately RMB109.2 million and RMB32.1 million respectively (six months ended June 30, 2021: approximately RMB92.3 million and RMB30.0 million). RMB respectively). The Group’s distribution network and distribution model will continue to support the development of the Group’s business activities for the foreseeable future.

Stable profitability

The Group recorded consolidated revenue of approximately RMB 196.1 million for the period, an increase of approximately RMB 24.3 million or 14.1% compared to the six months ended June 30, 2021. The increase in turnover is mainly due to the strong increase in revenue generated from the sales of our main products, namely the vigor and vitality supplement pill, the anti-fever and detox pill and the pill additional ingredient Huoxiang Zheng Qi due to improved marketing tactics adopted by existing distributors. The latter two products are believed to have a therapeutic effect intended for the treatment of symptoms of COVID-19 and/or a similar disease.

Vigor and Vitality Supplement Pill and Circulation Enhancement Pill were the top two selling products for the period and six months ended June 30, 2021. These two products contributed approximately 45.5% and 46.4% of the group’s total turnover for the period and the six months. months ended June 30, 2021, respectively.

The North East remained the main contributor to the Group’s total sales for the Period. It contributed more than 50.0% of the Group’s total revenue for the Period and the six months ended June 30, 2021. The increase in the Group’s total revenue of approximately 14.1% during of the Period compared to that of the six months ended June 30, 2021 June 30, 2021 was mainly due to sales growth in the Northeast and Huadong of approximately RMB 16.9 million and approximately RMB 2.5 respectively .

The Group manages the overall gross profit margin to ensure the profitability of the Group while allowing flexible price adjustments for individual products. Overall gross profit margin for the period decreased slightly to approximately 44.0% from approximately 45.7% for the six months ended June 30, 2021. This was primarily due to the relatively lower gross profit margin of Vigor and Vitality Supplement Pill, sales of which increased by approximately RMB 12.7 million during the period. On the other hand, the production costs of other products also increased due to higher purchase prices of some major ingredients during the period, which negatively impacted the overall gross profit margin.

Looking forward, Ms. Zhang Hongli, Executive Director of Modern Chinese Medicine Group Co., Ltd. said: “Looking forward, the recurrent COVID-19 pandemic remains one of the most volatile factors during the global economic recovery, but TCM and medical, health and hygiene forces in various countries always have the mission of safeguarding the common good destiny of human health. Along with China’s consumption upgrades and the continuous release of the benefits of favorable government policies, the TCM industry will enter a golden era. Group should adhere to our development strategies and exploit favorable government policies, in order to further promote the diversity of our product portfolio, increase revenue and create shareholder value.」

Hashtag: #ModernChineseMedicine

The issuer is solely responsible for the content of this announcement.

About the group

Modern Chinese Medicine mainly engages in the production of proprietary Chinese medicines and offers over-the-counter and prescription medicines for use by middle-aged and elderly people in the PRC. According to Euromonitor’s international report, the Group was one of the top unlisted companies engaged in MCP production in 2019 in terms of sales of Qi deficiency and blood stasis (補氣補血) PCM and cardio-cerebrovascular pills (心腦血管) PCM capsules in the northeast, the PRC.