Monday, March 1, 2021
 
Columnist
Martin Hennecke
 
KINGWORLD
HKEx Stock Code : 01110 
 
Corporate Profile
Principally engaged in the distribution of branded imported pharmaceutical and healthcare products in the PRC.

Business Review - For the year ended December 31, 2012

1. Administration of product categories impressively effective with trends of growth shown in market share

During the Year Under Review, through administration of product categories, optimization of distribution network and terminal network of key drug store chain, as well as strict control over retail end prices, the Group stabilized the market share of Nin Jiom Chuan Bei Pei Pa Koa, its key product in the Group's “cough relieving medications category”. The Group launched the slogan of “Drink a spoon of Pei Pa Koa syrup at home and take a piece of Chuan Bei Pei Pa Candy during your trip (居家喝一口念膏,出外旅行含一片念糖)” and the credentials of “Taking a piece of Chuan Bei Pei Pa Candy after smoking makes you fresh and cool (抽煙後含一片念糖讓 你神清氣爽)” on cough relieving, which were recognised by the consumers at large and quickly increased the sales of cough relieving wellbeing products and health food. As at 31 December 2012, the sales of Nin Jiom Chuan Bei Pei Pa Candies increased by 65% as compared with the same period in 2011, which laid a solid foundation for the integration and growth of “cough relieving medications”.

Taiko Seirogan (喇叭牌正露丸) is one of the popular products distributed by the Group. Benefitted from the integration of channels in Guangdong and Fujian last year, advertising for sales of products and coverage of third party terminals, amicable growth in sales was achieved. During the Year Under Review, due to the sudden impact of “Diaoyu Islands incident”, certain new consumers became resent over Japanese products. However, Taiko Seirogan, the Group's key product under the diarrhea medication category, virtually maintained its existing market share because of the high quality of such product and the excellent brand equity accumulated in the past years, as well as the launch and promotion of family size of 200 tablets. During the Year Under Review, the sales of Taiko Seirogan was fundamentally stable, amounting to RMB56,551,000 and representing a decrease of only 0.4% as compared with the same period in 2011.

The Group's third largest product category is the “medication for external use category”, which include Imada Red Flower Oil, Flying Eagle Wood Lok Medicated Oil and Mentholatum menthol cream. By leveraging on the sales and marketing strategies for the administration of product bundle comprising of medicated oil for external use that is “muscles relieving, bruise trimming and pain relieving” and menthol cream for external use that is “skin protecting and itch relieving”, integrated marketing strategies that target “high-end + low-end” consumers in oil for external use segment for muscles relieving, bruise trimming and pain relieving was formulated.

The development trend of Imada Red Flower Oil in the market remained steady upon the brand's outstanding penetration. However, as affected by the medical reform in China, the system on essential drugs was implemented in different phases. As this product falls into the category of non-essential drugs, its market share in health centers at towns and hospitals at counties in certain regions dropped. During the Year Under Review, the Group adopted proactive strategies in response to consolidate the market share of such product in retail drugstore market, through the implementation of management of medication for external use category. This brought growth as a whole in the medication for external use category. As at 31 December 2012, the sales of the Group's Imada Red Flower Oil amounted to RMB20,495,000, representing a decrease of 29% as compared with the same period in 2011.

During the Year Under Review, Flying Eagle Wood Lok Medicated Oil, another pillar product of the Group, received policy support from competent government authorities and obtained the one-off import approval in July 2012. The receipt of approval was considerably favourable to the Group and provided very strong impetus to the integrated sales and promotion of the Group's medication for external use category. The product attracted huge attention from both new consumers and traditionally loyal consumers. As at 31 December 2012, Flying Eagle Wood Lok Medicated Oil rapidly recorded sales of RMB17,109,000 within just five months, whilst there was nil sales in the same period of 2011 as the approval of such document was not received.

In addition, the import of Kawaii Liver Oil Drop (可愛的肝油丸), another product of the Group, was still temporarily suspended by the end of 2012 due to the disastrous earthquake in Japan and China banning the import of foodstuff from 12 counties and cities in Japan. As the sales of liver oil drop only accounted for about 2.0% of the Group's total sales before the suspension in 2011, the effect of suspension was minimal on the Group's sales.

2. Vertical and horizontal expansion of channels and end-user terminals with steady optimization in the distribution network

Upon the phrasal implementation of National Pharmaceutical Distribution and Industry Development Plan (全國藥品流通行業發展規劃綱要) for the Twelfth-Five Year Period between 2011 and 2015 by the Ministry of Commerce, the pharmaceutical distribution industry in China demonstrated a swift and progressive change. The Group followed the trend and executed a number of initiatives, such as giving guarantee in timely delivery of products to enduser terminals, fomulating strategy of a comprehensive coverage of network, and having active and extensive cooperation with national or regional leading pharmaceutical groups in China. At the same time, the Group also strengthened its cooperation with top 100 pharmaceutical wholesale enterprises in China. The area covered by the distribution network was enlarged while the structure of the distribution network was consolidated. As at 31 December 2012, there were approximately 230 primary distributors in the Group's network, which in turn had a network of approximately 668 secondary sub-distributors.

There was continuous growth in top 100 drug store chains in China, in terms of number of outlets, sales amount and concentration of distribution. Such end-user terminal model was mainly engaged in the provision of services to mid-to-high end consumers, which was comparable to the Group's operation of high quality imported medicines and health products. The Group placed a lot of emphasis in the versatile cooperation with top 100 key drug store chains in China. As at 31 December 2012, there were approximately 468 customers under the Group's key chain drug stores enterprise, and there were a total of 10,317 outlets under such key chain drug stores enterprise.

3. Revamp and improve operation quality of product display booths

In order to empower the promotion and marketing of the branded products under the Group, and to further enhance our corporate and brand image, the Group exercised stricter control over the selection of premises for the Product Display Booths under the name of “Kingworld Healthy Family”, and conducted refinement and optimisation over the Product Display Booths at different provinces and cities in China. On the one hand, specific studies were carried out on the outlet locations, sales and interior decorations with those Product Display Booths that were not meeting the expectation on outlet locations, sales or interior decoration being removed or relocated. On the other hand, the Group focused to develop those outlets with apparent advantages, and gradually expanded our cooperation with existing end-user terminals having high traffic flow and good sales in stand-alone stores. Quality of promotion activities was improved to raise the sales of products at such Product Display Booths. As of 31 December 2012, there were a total of 2,643 Product Display Booths set up by the Group under the name of “Kingworld Healthy Family”, representing a decrease of 11% from the number as at the end of 2011.

Business Outlook - For the year ended December 31, 2012

The pharmaceutical industry in China sees new changes and new trends in 2013. Factors such as the slight downward fluctuation of drug price, the expediting of new medication approval process, the introduction of the new essential medicines directory, the trial of countylevel essential medicines directory and the raised threshold for certification, etc. all acted to make the industry more concentrated and the market more competitive, hence creating more opportunities for well-known pharmaceutical enterprises (including the Group). Under the guidance of the “Strategic Development Plan in the Third Phase”, the Group was able to take full advantage of its own brands to build new marketing models by consolidating the multi-level brands of healthcare product brands, as well as utilising the benefits created by developments in the industry to increase the Group's growth rate.

1. TO CONTINUE TO DEVELOP THE HOSPITAL MARKET

As China's medical reform intensifies in 2013, development of urban hospitals and countylevel hospitals will become faster; hence products distributed by the Group like Nin Jiom Chuan Bei Pei Pa Koa, Taiko Seirogan and Imada Red Flower Oil shall continue to consolidate its development in the hospital markets in Eastern and Southern China regions, while at the same time actively bid for tenders in order to lay foundation for the development of the county-level hospital market.

2. TO DEVELOP DIVERSIFIED SALES OF NON-PHARMACEUTICAL PRODUCTS IN CHAIN DRUG STORES

Due to the introduction of medical insurance and essential medicine directory reform, sales growth of prescriptive drugs covered by medical insurance at retail pharmacies and OTC drugs were soft, particularly as chain drug stores were actively adapting the strategy of diversification against this change, making the market share of non-pharmaceutical products (including well-being products, health food, health supplies and medical devices, etc.) at retail drug stores rise rapidly.

The Group will continue to liaise with relevant government departments, and with the support of the manufacturers, will strive for the government's approval to import the Japanese Kawaii Liver Oil Drop range of products. Once the approval is received, the Group will introduce a diverse operation model jointly with mainstream chain drug stores, in order to increase the popularity & sales of the products.

For medical devices, in addition to Band-Aids, in 2012, other products like Cooling Gel Sheets were also introduced under the Disney-franchised “Disney's Gold 100” range of products. Thus boosting product sales through end-user promotions as well as enriching the product mix.

Also, the Group will be introducing other well-being products and health food to participate in a variety of promotion activities held by drug store chains, as well as collaborating with market distribution network in order to serve the health needs of end-users.

3. TO OPTIMISE BRAND MANAGEMENT

OF THE GROUP'S HEALTH PRODUCTS For the brand management of the cough-relief medicine products, Nin Jiom Mi Lian Chuan Bei Pei Pa Koa continues to be the leading product, whereas Nin Jiom Chuan Bei Pei Pa Candies was the key promotion product. The Group will continue to concentrate on the promotion of the cough-relief product lines by adopting a joint promotion strategy of “coughrelief medicines + cough-relief well-being products + cough-relief health food”.

In terms of brand management of external-use medicine, the marketing strategy of combining the promotion of “pain relieving medicated oil + antiitching topical cream” concentrated on the joint promotion of the three leading products of Flying Eagle Wood Lok Medicated Oil, Imada Red Flower Oil and Mentholatum menthol cream. To meet with the spending habits of consumers from Northern China, the Group will also start to introduce the “Pain Relieving Bandages”( 活血止痛貼劑) in order to expand the distribution and marketing network.

For the gastrointestinal product line, the Group will utilise the advantages provided by Taiko Seirogan to develop the markets in medical institutes and factory and mines clinics to expand existing sales channels.

4. TO INCREASE THE NUMBER OF KINGWORLD HEALTH FAMILY DISPLAY BOOTH AND QUALITY STANDARDS

The Kingworld Health Family Display Booth has always been the foremost and an important platform for the Group to display its products, raise brand awareness, enhance consumer communications and gauge consumer needs. In 2013, the Group plans to build on the foundation of number of booths that has been established, adding 357 booths to the existing 2,643 booths to a total 3,000 booths. The Group also plans to improve display booth quality and design, to carry out various promotional activities surrounding the booths, as well as to utilise the well-known brands represented by the display booths to develop other second-line products. Besides, display booths with higher customer traffic and sales will also be selected as flagship booths to feature the Company's various products according to phased changes of the marketing strategy.

5. TO INTRODUCE KINGWORLD HEALTH FAMILY E-BUSINESS PLATFORM

The pharmaceutical e-Business environment has been maturing steadily in recent years. SFDA (國家食品藥 品監督管理局) has already approved the licensing of 67 online B2C pharmaceutical sales service websites. On the other hand, leading e-Business platforms have joined the online pharmacy bandwagon and introduced B2C pharmaceutical websites. This further increases the size and suppliers' input of the pharmaceutical e-Business market. According to the China Pharmaceutical e-Business Association's statistics, B2C pharmaceutical sales volume increased by 300% from approximately RMB400 million in 2011 to approximately RMB1.7 billion in 2012. It is expected that B2C pharmaceutical sales volume will continue to grow by 300% to approximately RMB5 billion in 2013 which demonstrates the development of B2C pharmaceutical sales is still good.

Looking forward, the Group will strive to penetrate the e-Business market for a bigger market share by expanding the Kingworld Health Family's e-Business official website, as well as reinforcing the Group's partnership with other websites by establishing special distribution channels for brands. Furthermore, the Group will also establish distribution channels on third-party e-business platforms. We believe this will provide tremendous boost in the sales of nonprescription drugs and health food for the Group.

6. TO BUILD A TALENTED TEAM

In order to meet with the increasing human resources need, the Group will be recruiting high caliber candidates from the relevant medical and pharmaceutical industries, including, on the one hand, recruiting talented professionals in the field of sales and marketing to bring new management philosophy and methods, and on the other hand, introducing experts in brand management to enhance the sustained and rapid growth of the Group's products and corporate brands. Meanwhile, the Group will continue to collaborate with universities and academic institutes in China, to provide training opportunities for the Group's existing management and key personnel in order to improve work effectiveness.

7. TO ACCELERATE MERGERS AND ACQUISITIONS IN THE INDUSTRY

In 2013, by leveraging on the State's policies and the progresses on modernisation, the Group will expand its scope of selecting targets for mergers and acquisitions to include the great wellness industry (大健康產業), including but not limited to the enterprises engaging in research and development of Chinese and western medicines by advanced technologies, medical enterprises engaging in specific niche market with advantages in the industry, enterprises engaging in production and distribution of products with high growth potentials, enterprises engaging in medical devices of high technology and high added value, enterprises with competitive advantages in wholesale at the regional markets, enterprises engaging in retail chain operations with advantages over its geographical regions. We will speed up the process and seek to complete the acquisition of enterprises.

8. TO CONTINUE CONSTRUCTION

OF “KINGWORLD NATIONAL DISTRIBUTION CENTRE” The Group has already signed a letter of intent with the Shenzhen Qianhai Development Authority to establish the “Kingworld National Distribution Centre” in the economic zone. The Group will also continue to strengthen communication and coordination with relevant authorities to expedite the construction of the “Kingworld National Distribution Centre” in order to meet with the need of the Group for centralised distribution throughout China.

Source: Kingworld Med (01110) Annual Results Announcement
Chairman Zhao Li Sheng Issued Capital (shares) 623M
Par Value HKD 0.1 Market Capitalisation (HKD) 847M
 
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