8 things I learned from the 2019 Beijing Tong Ren Tang AGM

Founded in 1669 during the Qing Dynasty in China, Beijing Tong Ren Tang was the exclusive royal pharmacy for 188 years since 1723, ‘spanning the reign of eight emperors’. With 350 years of history, it is a well-known household name in China.

Beijing Tong Ren Tang Chinese Medicine Company Limited manufactures, wholesales, and retails traditional Chinese medicine (TCM) and healthcare products. It also provides Chinese medical consultation and treatments. It first established operations in Hong Kong in 2004, listed on the Growth Enterprise Market in 2013 before moving to the Main Board of the Stock Exchange of Hong Kong in 2018. The company is present in 21 countries and regions outside Mainland China and owns 81 retail outlets.

Often named as the world’s biggest TCM producer, I am glad to have attended its recent annual general meeting in Hong Kong. Here are eight things I learned from the 2019 Beijing Tong Ren Tang Chinese Medicine Company AGM:

1. Revenue increased 19.6% year-on-year to HK$1.5 billion in 2018, and has grown at a compound annual growth rate (CAGR) of 19.8% over the last six years. Hong Kong, Mainland China, and Macau collectively accounted for 88.4% of 2018 revenue with the rest contributed by overseas regions. The surge in revenue was due to rising demand for the company’s Angong Niuhuang Wan (安宮牛黃丸) and Sporoderm-broken Ganoderma Lucidum Spores Powder Capsules (GLSPC) (破壁灵芝孢子粉胶囊). In line with increased health consciousness among the public and improved marketing initiatives, Chairman Ding Yong Ling acknowledged that the company has been growing steadily and could reach out to more consumers via new marketing initiatives.

2. Executive Director Lin Man does not foresee any share buybacks in the near future as 71.7% of the company’s shares are already indirectly state-owned and the company would like to maintain/increase the liquidity of its shares. The shares are also available for trade for international and Mainland Chinese investors through Shenzhen-Hong Kong Stock Connect, which would help raise liquidity for the shares. A shareholder pointed out that the company is not covered by many analysts and research brokers. Ding acknowledged that they could reach out to institutional investors more.

3. Ding said that the company would jump on the bandwagon of the Belt and Road Initiative to raise awareness of the benefits of TCM and promote Chinese culture through TCM globally. Beijing Tong Ren Tang has a reasonable global business presence and participated in the recently held Belt and Road Forum for International Cooperation in Beijing in May 2019.

4. Executive Director Zhang Huan Ping shared that the company will focus on the following three areas as part of their growth plans:

• Accelerate foreign registration of branded products
• Train more medical practitioners overseas and promote TCM to westerners instead of just overseas Chinese as the awareness of the benefits of TCM is still rather low among westerners.
• Expand overseas as well as re-evaluate both domestic and foreign resources for future development

In addition, he reassured shareholders that the company will not change because of shuffles in directorships especially in the holding company over the scandal of reusing expired honey.

5. Ding shared that the company is in the midst of developing an enhanced premium Angong Niuhuang Wan with three natural ingredients (三天然). The new product, which is used for stroke, is an upgrade from the existing one that consists of two natural ingredients (双天然), namely natural calculus bovis and musk. The new product that has been approved by the Ministry of Health will be solely distributed by the company. According to Ding, the number of patients who suffer from stroke could hit 30 million in China. Stroke is also one of the leading causes of death in Hong Kong. The directors were careful not to disclose too many product details to shareholders prior to its release.

6. As usual, there were shareholders who requested for a higher dividend at the AGM. Dividend per share increased 21.1% to HK$0.23 in 2018. At the same time, dividend yield stood at 1.9%. The company prefers to keep some money to maintain its cashflow but will aim to pay a higher dividend in the future.

7. A shareholder was concerned about the slowdown in registrations of the company’s products overseas particularly Angong Niuhuang Wan. Ding shared that overseas registrations are tough and time-consuming — the EU took eight years to register one its products — because of non-conventional ingredients. For instance, Angong Niuhuang Wan contains various ingredients of plant and animal origins such as powdered buffalo horn extract. (It doesn’t use rhinoceros horn extract which is strictly prohibited by law.) Revenue is expected to grow once registrations are completed. The company will continue to develop new products based on traditional recipes and protect their intellectual property.

8. Ding alluded that the slowdown in business development was due to bureaucracy. As long as investment in foreign countries is involved, approval needs to be sought from the top. Also, she agreed with one of the shareholders that the company could do more in terms of online-to-offline commerce particularly in mainland China. GLSPC is well-received among cancer patients because of its potential anti-tumour properties. Besides hospitals, she believes the health benefits of GLSPC can be communicated to the public via other channels more innovatively.

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