Solid growth with focus to broaden the distribution network and raise R&D efforts

PERFORMANCE HIGHLIGHTS

• The Group posted a consolidated revenue of approximately RMB308.7 million for the year ended 31 December 2020, representing an increase of approximately 41.1%.
• For the year ended 31 December 2020, the gross profit increased 38.1% to RMB136.9 million and overall gross profit margin decreased slightly to approximately 44.3%.
• Profit before tax largely increased by 38.7% to approximately RMB90.5 million.
• The increase in revenue was primarily driven by the surge in revenue generated from Additional Ingredient Huoxiang ZhengQi Pill and Fever-removing and Detoxification Pill.
• Northeast, the PRC remained as the largest contributor to the Group’s total revenue.
• The Group has currently established a distribution network of over 70 distributors covering about 40 cities in the PRC.
• During the year ended 31 December 2020, the R&D expenses amounted to approximately RMB10.2 million, representing approximately 3.3 % of the Group’s total revenue.

HONG KONG, March 26, 2021 /PRNewswire/ — Modern Chinese Medicine Group Co., Ltd. (“the Company” or “Modern Chinese Medicine”, together with its subsidiaries, the “Group”, HKEX stock code: 1643) announced its annual results for the year ended 31 December 2020. Despite the impact of the COVID-19 pandemic, the Group recorded a solid growth for the reporting period. The Group posted a consolidated revenue of approximately RMB308.7 million for the year ended 31 December 2020, representing an increase of approximately 41.1% as compared to the corresponding year in 2019. The gross profit was approximately RMB136.9 million, representing an increase of approximately 38.1% while the overall gross profit margin decreased slightly to approximately 44.3%. Profit before tax largely increased by 38.7% to approximately RMB90.5 million.

BUSINESS REVIEW

The Group is considered as one of the leading companies engaged in the production of PCM in terms of the sales of Qi – deficiency and blood-stasis PCM pills and cardio cerebrovascular PCM capsules in Heilongjiang, Jilin and Liaoning provinces (collectively referred to as “Northeast, the PRC”). The Group currently has about 60 types of PCM products, including some major products which are believed to be having the intended therapeutic effect for the treatment of the symptoms of COVID-19 and/or similar illness.

Well established distribution network and deep market penetration in Northeast, the PRC

Leveraging on the experience and vision on the established branded products and distribution network, the Group was able to compete in the traditional Chinese medicine industry so as to capture satisfactory business growth. The Group has currently established a distribution network of over 70 distributors covering about 40 cities in the PRC, which are in turn served and administered by over 30 marketing staff members with relevant experience in the traditional Chinese medicine industry. The distribution network would not only help to develop the business operations geographically from Northeast to other areas in the PRC, but also allow the Group to penetrate in reasonably extensive width and breadth in Northeast, the PRC, where the Group is strategically targeting at in view of the Group’s established footprint and the large population there. For the year ended 31 December 2020, the revenue contribution from Northeast was approximately 53.4% remained as the largest contributor to the Group’s total revenue. In the future, the Group also plans to broaden the distribution network in Huanan and Huadong so as to support further development of its business operations.

Raising R&D efforts

The Group believe that research and development (“R&D”) is critical in maintaining the competitive edge and advantages of the Group. The Group usually engages external partners to take the leading role in executing the pre-clinical development projects. During the year ended 31 December 2020, the R&D expenses amounted to approximately RMB10.2 million, representing approximately 3.3% of the Group’s total revenue. Addition to outsourcing, the Group’s R&D Department also played a vital role in quality control and quality assurances of the products.

Financial performance

Despite the impact of the COVID-19 pandemic, the Group recorded a solid growth for the reporting period. The Group posted a consolidated revenue of approximately RMB308.7 million for the year ended 31 December 2020, representing an increase of approximately RMB89.9 million or 41.1% as compared to the corresponding year in 2019. The increase in revenue was primarily driven by the surge in revenue generated from Additional Ingredient Huoxiang ZhengQi Pill and Fever-removing and Detoxification Pill. These products were two of the top selling products and contributed approximately 17.1% of the Group’s total revenue for the year ended 31 December 2020 and they were believed to have an intended therapeutic effect for the treatment of the symptoms of COVID-19 and/or similar illness. Geographically, Northeast, the PRC, remained as the largest contributor to the Group’s total revenue. It contributed over 50% of the Group’s total revenue for both of the years ended 31 December 2020 and 2019. It is expected that Northeast will continue to be the Group’s key source of revenue.

For the year ended 31 December 2020, the overall gross profit margin decreased slightly to approximately 44.3% as compared to approximately 45.3% for that of 2019. This was mainly due to the decrease in gross profit margin of Vigour and Vitality Supplement Pill, which resulted from the large increase in the purchase price of Deer Antler, one of the major raw materials for this product.

Profit before tax increased by 38.7% from approximately RMB65.3 million for the year ended 31 December 2019 to approximately RMB90.5 million primarily due to the increase in sales of Additional Ingredient Huoxiang ZhengQi Pill and Fever-removing and Detoxification Pill during the year ended 31 December 2020.

Looking ahead, Mr. Xie Wei, Chairman, Executive Director and Ultimate Controlling Party of Modern Chinese Medicine Group Co., Ltd. said, “the Group recorded a strong growth despite the headwinds caused by the downward pressure on the Chinese economy. 2020 was a year of challenges and opportunities to the PRC proprietary Chinese medicine industry. While the COVID-19 pandemic may have posed difficulties to the production and operation of some pharmaceutical companies, the industry overall is still experiencing solid growth with favourable support from government policies. In addition, the COVID-19 pandemic has raised public awareness of healthcare, altered public’s consumption pattern and shopping habits. The Group has confidence in the future aspects of the economy of the PRC as well as the industry. We will continue to implement our long-term growth strategies, seize all the development opportunities arising from the promotion of inheritance and innovation of traditional Chinese medicine by the PRC Government, evaluate and consider the development of different online channels by identifying distributors with such capability and strive to consolidate the Group’s market position.“

About the Group

Modern Chinese Medicine principally engages in the production of proprietary Chinese medicine and offers both over-the-counter and prescribed medicines intended for use by the Middle-aged and the Elderly in the PRC. According to the Euromonitor International Report, the Group was one of the leading non-listed companies engaged in the production of PCM in 2019 in terms of the sales of Qi-deficiency and blood-stasis PCM pills and cardio-cerebrovascular PCM capsules in Northeast, the PRC.