China Resources's Strategic Acquisition: 120 Million CNY Investment in Zhejiang Pharmaceutical

In a significant move for the pharmaceutical sector, China ResourcesCommercial has successfully acquired Zhenyuan Pharmaceutical, a subsidiary of Zhejiang Zhenyuan, for nearly 120 million CNY. The announcement was made by the Shaoxing Transportation Investment Group, which confirmed the investment through a public bidding process.

Background on Zhenyuan Pharmaceutical

Zhenyuan Pharmaceutical has a rich history dating back to 1752, making it one of China’s oldest pharmaceutical companies and the first publicly listed entity in the traditional Chinese medicine sector. As part of the top 100 pharmaceutical companies in China and a leading player in Zhejiang province, Zhenyuan engages in a comprehensive range of operations, including the production of active pharmaceutical ingredients, traditional Chinese medicine processing, and health services.

In response to increasing competition in the pharmaceutical market, Zhenyuan has opted to refocus its efforts on pharmaceutical manufacturing. On December 26, 2023, the company announced plans to consolidate its wholesale operations under Zhenyuan Pharmaceutical, boosting the latter’s capital by 67.1 million CNY to support its growth.

Strategic Importance of the Acquisition

The acquisition allows China Resources Commercial to expand its footprint in the Zhejiang market, leveraging Zhenyuan's extensive resources, customer base, and sales channels. Zhenyuan Pharmaceutical’s operations encompass a wide range of activities, including drug wholesale and medical device sales, establishing it as the largest professional distributor of medical products in the Shaoxing area.

As of December 31, 2023, Zhenyuan Pharmaceutical reported total audited assets of approximately 127 million CNY, with net assets around 56 million CNY. Following the acquisition, Zhenyuan will transition from a wholly-owned subsidiary to an associate company, no longer included in Zhenyuan's consolidated financial statements.

Financial Forecast

On January 17, 2024, Zhejiang Zhenyuan released its earnings forecast for the upcoming year. The projected net profit attributable to shareholders is expected to decline due to various factors, including intensified competition, stringent medical procurement, and ongoing strategic adjustments, which have adversely affected the scale of its wholesale operations.

Broader Industry Activity

China Resources’s acquisition is part of a broader trend in the pharmaceutical industry. Earlier this year, Shanghai Pharmaceuticals announced plans to invest nearly 995 million CNY to acquire a 10% stake in Shanghai Hengrui Medicine, increasing its total ownership to 60% and solidifying its control over the company.

Market Performance of Major Pharmaceutical Distributors

In the first three quarters of 2024, several leading pharmaceutical distributors, including Shanghai Pharmaceuticals and Jiuzhoutong, reported significant revenue from their distribution activities. By mid-2024, national distributors had expanded their networks across 31 provinces, with revenues exceeding 100 billion CNY for several firms.

The acquisition of Zhenyuan Pharmaceutical by China Resources Commercial represents a strategic effort to enhance market presence and operational capabilities in the competitive pharmaceutical landscape. With ongoing mergers and acquisitions shaping the industry, China Resources is poised to continue its robust growth trajectory in the coming years.