The largest fraud company in the history of A-shares, is it going to take off its hat?

Market Cap Observation

2024-06-27 12:31Creators in the field of finance and economics

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01Kangmei Pharmaceutical, the largest fraud company in the history of A-shares, is expected to take off the hat, and other risk warnings touched by the audit report on which the internal control in 2020 was issued a negative opinion have been eliminated.

02The company's operating income in 2023 will be 4,874,016,100 yuan, a year-on-year increase of 16.60%; The net profit attributable to shareholders of the listed company was 102.5212 million yuan, turning losses into profits.

03 Due to the bad fraud in the past, Kangmei Pharmaceutical has been broken and caught in endless litigation cases, the most important of which is the debt dispute with Bohai Trust.

04However, with the support of Guangzhou Pharmaceutical Group, Kangmei Pharmaceutical gradually got out of the predicament, took traditional Chinese medicine decoction pieces as its core product, and implemented the business strategy of integrating the whole industrial chain of traditional Chinese medicine.

05 Despite this, Kangmei Pharmaceutical is still facing the problem that it takes time for the main business to fully recover, and the aftermath of the past fraud cases has not stopped.

Technical support is provided by Tencent Hybrid Model

Author: Taylor, Editor: Xiaoichi Mei

A few years after the incident, Kangmei Pharmaceutical, the protagonist of the largest fraud case in A-shares, seems to have shown signs of reversal.

On June 26, ST Kangmei issued an announcement on the company's stock application to revoke other risk warnings, and the "other risk warnings" touched by the company's audit report on internal control in 2020 have been eliminated, and the Bohai Trust case has been judged and entered the enforcement procedure, and the company's profitability has continued to increase. The company's operating income in 2023 will be 4,874,016,100 yuan, a year-on-year increase of 16.60%; The net profit attributable to shareholders of the listed company was 102.5212 million yuan, turning losses into profits.

The next day, ST Kangmei opened with hundreds of thousands of sealed orders to seal the daily limit.

Since the financial fraud incident, Kangmei Pharmaceutical has suffered huge losses after deducting non-profits for 4 consecutive years from 2019 to 2022, although in 2021, it will obtain a huge income of 17.5 billion yuan due to the reorganization proceeds, resulting in a large profit that year. But in fact, Kangmei is still in the process of scraping bones to cure poison.

As early as 2018, Kangmei's model was questioned by the media. At the end of that year, the China Securities Regulatory Commission found in its daily supervision that Kangmei Pharmaceutical's financial report was suspected of false statements, etc., and immediately opened a case for investigation.

In April of the following year, Kangmei Pharmaceutical took the initiative to "expose the scandal" and admitted that the company had inflated monetary funds by 29.9 billion yuan in 2017. From 2016 to the first half of 2018, Kangmei Pharmaceutical inflated its operating income by 8.999 billion yuan, 10.032 billion yuan, and 8.484 billion yuan respectively, with an inflated amount of about 30 billion yuan, and a cumulative inflated monetary capital of 88.6 billion yuan, setting the largest fraud record in the history of the A-share market.

From its listing in 2001 to 2016, the company's performance has grown steadily, and its stock price (later resumed) has risen more than 30 times to its historical peak in 2018.

Who would have thought that all this splendor was a mirage built on lies and fraud.

The Kangmei case shocked A-shares and became the first case after the new Securities Law established the special representative litigation system for securities with Chinese characteristics, and it is also the fraud case of a listed company with the largest number of plaintiffs and the highest amount of compensation so far.

In the end, Ma Xingtian, the original actual controller of Kangmei Pharmaceutical, and a number of responsible persons were severely punished, and Ma Xingtian was sentenced to 12 years in prison and fined 1.2 million yuan for several crimes; Kangmei Pharmaceutical was fined 5 million yuan for the crime of offering bribes by the unit.

For the more than 50,000 investors who were miserable, the court demanded that Kangmei Pharmaceutical compensate 2.459 billion yuan, and Ma Xingtian and his wife, Qiu Xiwei and other four former executives, as well as the audit agency Genzon Zhujiang Certified Public Accountants, must bear 100% joint and several liability.

Such a huge financial fraud is tantamount to a devastating blow, and because the impact is too far-reaching, Kangmei Pharmaceutical has since fallen into the ice cellar.

After three years of reorganization, since 2023, Kangmei Pharmaceutical's revenue has recovered under the new regulator Guangzhou Pharmaceutical Group, but its main business is still losing money after deducting non-profits. It can be seen that its own hematopoietic ability has not been fully recovered, and it will take time to return to the track of healthy growth.

Kangmei Pharmaceutical used to be the second largest pharmaceutical stock in A-shares, with a market value of 139 billion yuan at its peak in 2018. Today, there is only a market value of more than 26 billion yuan, which is equivalent to a market value of 113 billion yuan.

In September 2020, the original controlling shareholder Kangmei Industrial and the actual controller were no longer able to manage the listed company, so they entrusted the voting rights of 29.9% of Kangmei Pharmaceutical's shares to Yilin Investment for exercise, and gave up the remaining 8.38% of the shares. Yilin Investment took over the production and operation of Kangmei Pharmaceutical and the disposal of assets and debts.

Yilin Investment was established on August 18, 2020, and its shareholders are all state-owned assets, with Jieyang Urban Investment holding 40% of the shares, Guangdong Financial Services Equity Custody Center and Guangzhou Shennong's Traditional Chinese Medicine Development Co., Ltd. holding 30% of the shares respectively.

It is not difficult to find that Yilin Investment was established to specifically solve the remaining problems of ST Kangmei, and stabilized the basic plate of the company's production and operation through "trusteeship", and successfully survived the turbulent period.

In April of the following year, Jiedong Rural Commercial Bank applied to the Jieyang Intermediate People's Court for the bankruptcy reorganization of Kangmei Pharmaceutical, and seven months later, the Jieyang Intermediate People's Court ruled to approve the "Reorganization Plan" of Kangmei Pharmaceutical.

At this time, Shennong's Enterprise, one of the shareholders of Yilin Investment, came to the forefront, as a representative of Guangzhou Pharmaceutical Group, it has natural business synergy with Kangmei Pharmaceutical, and its territory is in Guangdong. It is also logical for Guangzhou Pharmaceutical Group to come forward as a reorganizationr.

According to the reorganization plan, Shennong's enterprise obtained 3.509 billion shares of converted shares with 5.419 billion yuan in cash and assets, accounting for 25.3134% of the total share capital of the listed company after the reorganization, and became the controlling shareholder.

Behind Shennong's enterprise is the Guangzhou Pharmaceutical Group, which plays a key role in the restructuring process and is the key to Kangmei's rebirth.

Compared with the other two major shareholders of Yilin Investment, GPC has the genes of the pharmaceutical industry. Since the trusteeship, GPC has organized a team of nearly 100 people to support the development of Kangmei, and give full play to its own industrial advantages and its position in the eastern Guangdong market, leading the collaborative integration of Kangmei Pharmaceutical and GPC Baiyunshan.

Moreover, in order to repay the debt, Kangmei Pharmaceutical disposed of some assets in the process of reorganization, although the scale of assets was greatly reduced after the reorganization, the scale of liabilities was also greatly narrowed, and the shareholders' equity increased after the capital reserve was converted into share capital.

Just like the phoenix nirvana, Kangmei Pharmaceutical is bound to go through an extremely tragic period of pain after financial fraud. However, after the tumor was extracted, with the support of Guangzhou Pharmaceutical Group, Kangmei Pharmaceutical also had the confidence to write the "second half of the article".

If Kangmei Pharmaceutical wants to survive in a desperate situation, in addition to its own foundation, it is also inseparable from the help of Guangzhou Pharmaceutical Group.

After the reorganization, the company still takes traditional Chinese medicine decoction pieces as its core products, and continues to implement the business strategy of integrating the whole industrial chain of traditional Chinese medicine.

At present, the traditional Chinese medicine industry is in a golden age, "healthy China" has risen to a national strategy, and the traditional Chinese medicine industry has been strongly supported by top-level policies.

At the same time, the epidemic has increased the demand for the use of traditional Chinese medicine, and the severe drought in Guizhou and other places in 2022 has led to a significant reduction in the production of many medicinal materials. In addition, the cost of Chinese herbal medicine planting has risen year after year, and the mismatch between supply and demand has intensified, triggering an unprecedented wave of price increases in Chinese herbal medicines, and the prices of many varieties such as Atractylodes, Coptis chinensis, and Angelica sinensis have reached a record high.

The Tiandi Chinese Herbal Medicine Composite 200 Index and the Kangmei Chinese Herbal Medicine Price Index both hit record highs around August 2023, and even if they have fallen since then, the prices of the entire Chinese herbal medicines are still at a historical high.

The stock prices of traditional Chinese medicine companies such as China Resources Sanjiu and Tong Ren Tang have all stepped out of an epic bull market, and the stock prices of Taiji Group, Darentang, Kunming Pharmaceutical Group, Jiuzhitang, Jiangzhong Pharmaceutical, etc. will reach a historical peak in 2023. With the growth of performance, the stock price vibrated at the same frequency, and Davis double-clicked was realized.

The industry is bullish, and Kangmei Pharmaceutical has ushered in a huge positive external environment. The company is the largest manufacturer of traditional Chinese medicine decoction pieces in China, although the upstream price increase has brought cost suppression to the production of midstream decoction pieces, but Kangmei has laid out the integration pattern of the industrial chain based on traditional Chinese medicine decoction pieces.

Based on the scale advantage, it has established close cooperative relations with the upstream, and at the same time built Kangmei Traditional Chinese Medicine Hospital to open up the downstream industrial chain, and has also established in-depth cooperative relations with more than 1,100 medical institutions and more than 40,000 chain pharmacies across the country.

The integration of upstream and downstream will help the company to stabilize the cyclical fluctuations of upstream medicinal material prices. Internally, the company is backed by Guangzhou Pharmaceutical Group, and the strength of Guangzhou Pharmaceutical is needless to say, the group is the world's first Fortune 500 Chinese medicine company, and its Baiyun Mountain, which ranks first in the revenue of the A-share Chinese medicine industry.

Since the date of the reorganization, GPC has spared no effort to support the development of Kangmei. In 2022, the new Kangmei management team was unveiled, and Lai Zhijian, deputy director of quality, director of technical quality department, and director of safety production and development department of Guangzhou Pharmaceutical Group, was appointed as the chairman of the company. In addition, the general manager and the chairman of the board of supervisors are all from GPC.

The dispatch of team talents, coupled with brand endorsement and industrial resource synergy, from the perspective of revenue, Kangmei Pharmaceutical has a trend of recovery.

However, due to the bad fraud in the past, the company has been broken and has been caught in endless lawsuits. The most important of these is the debt dispute with Bohai Trust, and the court has ruled in the first instance to require Kangmei Pharmaceutical to compensate it 2.82 billion yuan.

On the whole, Kangmei Pharmaceutical has come out of the ICU and has not been delisted, and is in a positive trend as a whole. It's just that the body is still weak, the aftermath of the past fraud cases has not stopped, and it will take some time for the main business to fully recover.

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The content of this article related to listed companies is the author's personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); The information or opinions contained herein do not constitute any investment or other business advice, and Market CapWatch disclaims any liability for any actions resulting from the adoption of this article.

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