Dong ‘e Ejiao admits that the channel relies on hoarding goods for profit. How to reverse the sharp drop in performance？

　　The destocking of channels dragged down the performance of Dong ‘e Ejiao, and how did the inventory of channels accumulate?

　　The performance of Dong ‘e Ejiao (000423.SZ) in the interim report dropped by nearly 80%, which made the capital market unexpected. After a word limit on July 15 and a 5.59% drop on July 16, the stock price once fell more than 2% in intraday trading this morning (July 17). Dong ‘e Ejiao, which has long been advertised by the market as one of the white horse stocks, why did it develop so far?

　　The First Financial Reporter noticed that Dong ‘e Ejiao responded to the challenges faced by the company in the newly disclosed record of investor relations activities on the interactive platform of Shenzhen Stock Exchange. "The channel originally relied on hoarding goods to make profits. All channel providers are profitable when we raise prices, because the shelf life of Ejiao is 5 years. If dealers hoard goods, the difference will be relatively large. Now the channel has changed, from relying on stocking to relying on turnover rate. We have adjusted the inventory reduction in line with the channel changes, which has brought short-term fluctuations in sales performance and is also the main reason for this decline in performance. " Dong’ e Ejiao said this.

　　Dong ‘e Ejiao’s interim report performance forecast shows that the company expects the net profit attributable to shareholders of listed companies to decrease by 75% to 79% in the first half of this year compared with the same period of last year. This decline will be the largest in the interim report since the company went public in 1996. In the notice, the company said that due to the overall macro-environment and other factors, and the market’s expectation of the return of Ejiao value gradually decreased, the company’s downstream traditional customers took the initiative to reduce inventory, resulting in a year-on-year decline in product sales in the first half of the year.

　　Recently, the first financial reporter also learned in the interview that the channel is keen on hoarding goods, which is also inseparable from the frequent price increase of Dong ‘e Ejiao. Frequent price increases have become a lingering brand left by Dong ‘e Ejiao.

　　According to the First Financial Reporter, during the nine years from 2010 to 2018, Dong ‘e Ejiao raised the ex-factory price of Ejiao, the company’s main product, for a total of 11 times. Among them, in 2010 and 2014, the company raised the price three times in one year. Since 2015, the frequency of the company’s price increase has slowed down to once a year, and it is concentrated in November of that year, which is just the peak season for Ejiao sales.

　　Some people in the industry also told the First Financial Reporter that the price increase rhythm like Dong ‘e Ejiao has given the channel expectations over time. Therefore, whenever it is premonition that manufacturers are going to raise prices, the channel will stock up in advance. In view of Dong ‘e Ejiao’s own brand effect, the channel also believes that the company’s products are not worried about selling.

　　Now, looking back, the frequent price increase of Dong ‘e Ejiao has many disadvantages. Here, how does Dong ‘e Ejiao reverse the situation?

　　"In recent years, the company’s brand, quality and scientific research have gradually strengthened, and the pure sales of terminals are growing, and the growth rate exceeds the market average. The main problem now is that we take the initiative to reduce inventory. In the future, we will launch pulling measures around consumers, and this year’s strategy will be adjusted accordingly. " Dong ‘e Ejiao mentioned in the above-mentioned investor relations activity record.

　　Dong ‘e Ejiao said that in combination with the changes in the external environment and the trend of channel customers to improve efficiency and reduce costs, since last year, the company has started from the needs of channel customers and its own development needs, reduced inventory and returned to benign, canceled some secondary commercial customers, flattened channels, and strengthened channel layout in pharmaceutical commerce and retail chain. In terms of traditional channels, in the past, the company’s key channels were retail pharmacies, including customers with leading positions in the industry, such as ordinary people, Yifeng and Guoda Pharmacy. Last year, on the basis of the original, the company began to strengthen cooperation with regional leading chains and top 100 chains. This year, it laid out the market development of thousands of counties and expanded to the grassroots market. At the same time, we are also developing channels for medical terminals, including grade hospitals and primary hospitals.

　　How will the stock price go?

　　The First Financial Reporter also noticed that Dong ‘e Ejiao’s record of investor relations activities was mainly based on the investigation of institutional investors such as CICC on July 15th.

　　It is worth mentioning that on July 16, CICC also published a research report on "Dong ‘e Ejiao promotes channel sorting throughout the year and short-term performance is under pressure". In this research report, CICC downgraded Dong ‘e Ejiao to "neutral" and lowered its target price by 32.4% to 33.8 yuan. CICC said that the expected price increase of Dong ‘e Ejiao was reduced, and the pressure on channel inventory began to be released. The value regression strategy of Dong ‘e Ejiao’s core products has been going on for many years, and the channel has formed a certain inertia of stocking. However, at present, with the decrease of the company’s price increase expectation, the channel’s willingness to stock has declined, and the inventory pressure has begun to be released.

　　"The market believes that the company’s long-term strategy is unclear, but we believe that the company has brand potential and is expected to achieve benign development through the development of new products, new channels and new people in the future. However, at present, the company is facing the dilemma of actively adjusting channels, and its operating income and adjustment time are still unpredictable. " CICC also said so.

　　Looking back at the trend of Dong ‘e Ejiao’s share price, during the past thirteen years from November 2005 to June 2017, the company’s share price has increased more than 10 times after its restoration. It is precisely because of Dong ‘e Ejiao’s stable share price and stable performance that the organization is keen on heavy positions. According to the straight flush data, as of the end of the first quarter of this year, among Dong ‘e Ejiao’s shareholders, the total institutional shareholding ratio is still as high as 51.03%.

　　Nowadays, under the slump in performance, how will Dong ‘e Ejiao’s share price be interpreted?

　　After Dong ‘e Ejiao’s share price fell to the limit on July 15th, from the list of trading companies’ stocks on that day, we can see that there are no institutions in the top five with the largest selling amount. On the contrary, among the top five with the largest purchase amount, one institution-specific seat appeared, and the purchase amount of that day was 3,623,500 yuan.

　　Some private investors also told the first financial reporter that the company is in a period of gradual release of bad news and the stock price needs to be repaired. On the whole, Dong ‘e Ejiao products still have brand value and vitality, but the driving force for the subsequent company’s rise depends on the performance of new products and the promotion of new channels.