Buchang Pharmaceutical Co., Ltd. released a performance forecast for 2023, and the first thing that is very clear is that the company's performance this year has turned into a profit, with a year-on-year increase of between 118% and 124%.
It stands to reason that Buchang Pharmaceutical has such a good performance is a happy thing, but in the announcement of the results, the company mentioned the impairment of goodwill.
What is Goodwill?
The textbook says: "Goodwill usually refers to the value formed by the enterprise under the same conditions that can obtain a higher than the normal rate of return on investment, it is a component of the overall value of the enterprise, and in the case of business combination, it is the difference between the investment cost of the purchased enterprise and the fair value of the net assets of the merged enterprise."
In the field of investment, there is a saying that "no merger and acquisition, no goodwill", which means that goodwill only appears when a company makes an acquisition.
Suppose the fair value of a business is 10 million, but it has excellent characteristics, then when we buy it, we often need to spend 12 million or more. Because these good qualities will bring us higher than the market average in the future, and other companies that look at it will also compete with us.
From an accounting point of view, since the fair value of this company is 10 million, but we spent 12 million, the extra 2 million becomes goodwill.
The more companies a company acquires and merges, the more goodwill will be reflected on its balance sheet.
The goodwill value of Buchang Pharmaceutical has remained at about 5.1 billion yuan in the past few years, and in 2022, it will suddenly make an impairment provision of 3 billion yuan - 3.4 billion yuan.
It should be emphasized here that the 3 billion yuan --- 3.4 billion yuan need to be written off from the company's profits for the year.
If Buchang Pharmaceutical does not provide for goodwill impairment this year, its net profit in 2022 should be about 1.8 billion yuan, which is about 50% higher than the net profit in 2021.
The par value of goodwill in Buchang Pharmaceutical's financial report has been maintained at about 5 billion yuan before 2022, and such a high amount of goodwill is due to the acquisition of two subsidiaries with very strong earning power, namely Tonghua Guhong Pharmaceutical*** and Jilin Tiancheng Pharmaceutical***, the main products produced by these two subsidiaries are Guhong Injection and Compound Treotide Injection, and Compound Brain Peptide Ganglioside Injection.
However, in 2022, these three products have been transferred out of the provincial medical insurance catalogue one after another, because of the transfer of medical insurance, the amount has been greatly affected, and the profit has been reduced, therefore, the company decided to make a corresponding provision for the impairment of goodwill, and a one-time provision of 3 billion yuan was made in the 2022 annual performance report.
It stands to reason that after the provision of 3 billion yuan for goodwill impairment, it should come to an end temporarily, but what I did not expect is that in the 2023 annual performance forecast, the company once again mentioned the provision of goodwill, and the specific situation is as follows: Pinguhong Injection, Compound Treotide Injection, and Compound Brain Peptide Ganglioside Injection will be transferred out of the provincial medical insurance catalogue at the end of 2022, and will be included in the "Provincial Key Monitoring and Rational Drug Catalog" by some provinces at the beginning of 2023. In order to be cautious, the company is prepared to continue to provide for goodwill impairment of about 1.2 billion yuan in the 2023 annual performance report.
To be honest, Buchang Pharmaceutical's high goodwill has always been a time bomb, which may be detonated at any time and lead to the stock price. The day after the 2022 annual results were announced, the stock price fell to the limit, resulting in the stock price being in a downturn for a long time. Goodwill is mentioned again in the 2023 performance forecast, and it seems that this time there will be a large **.
However, fortunately, the amount of goodwill impairment this time is 1.2 billion yuan, which is a little less than last year, which is why this year's performance will turn losses into profits compared with 2022, but then again, the goodwill value in 2023 is just a plan of the company, which is still being tested and has not yet been implemented, so this is still an unknown.
At present, the share price of Buchang Pharmaceutical has hit a historical low since nine years of listing, in this position, the company has impaired goodwill for two consecutive years, from another point of view, this is a good imagination, in this way, the company can completely get rid of the phenomenon of inflated goodwill, at the bottom of the stock price, the company itself detonated this thunder first, in this way, it can clear the obstacles for the stock price, the company can easily go into battle, and there is no worries in the process of the stock price.