The 2020 semi-annual operating review of the board of directors of Shengjitang (600227) is as follows:

1. Discussion and analysis of operating conditions

(1) Fertilizer and chemical industry Business

During the reporting period, due to the impact of the epidemic, international situation and market, the domestic urea market showed a "convex" trend in the first half of the year, but the market fell more often than it rose. As of June 28, the average price of domestic urea was 1,677 yuan/ton, compared with the average price of 1,670 yuan/ton at the beginning of the year, a year-on-year decrease of 7 yuan/ton. From the analysis of production and demand, international urea price trends, macroeconomic situation, and overall petrochemical product trends, the urea market in 2020 is not very optimistic and is expected to be worse than 2019.

In the first half of 2020, my country's methanol market was operating weakly as a whole. Affected by the COVID-19 epidemic, the resumption of work of enterprises in many cities has been repeatedly postponed, causing both supply and demand to be affected to varying degrees. Inventories in major upstream factories continue to accumulate, logistics is not smooth and downstream demand continues to be light. Inventory pressure gradually accumulates and some devices are planned to shut down or reduce their load. The start-up of downstream devices is also limited due to insufficient replenishment of raw materials and accumulation of product inventories. Main olefin plants have been shut down for maintenance one after another, and the oversupply situation is difficult to alleviate. The plummeting international crude oil has driven the port spot price to a deep decline, and market panic has spread. Compared with previous years, my country's methanol market was basically in a weak downward stage in the first half of 2020, mainly concentrated in the range of 1,375-2,515 yuan/ton, a year-on-year decrease of 9.8%-36.5% from last year.

During the reporting period, the company took proactive measures based on relevant market conditions:

First, strengthen management to improve quality and efficiency. Comprehensively implement 6S management and enhance the scientificity and standardization of on-site management work. In June, it successfully passed the measurement system review and certification, providing effective guarantee for subsequent lean management. On this basis, the company actively benchmarks against advanced standards, optimizes production indicators, and various consumption trends show a downward trend. At the same time, Tongzi Chemical has further strengthened its internal safety work. In the first half of the year, the company intensified the investigation and management of hidden dangers, strengthened safety training and learning for employees, and promoted the automation of production equipment with the goal of intrinsic safety, further improving production operations. safety management level.

Second, the annual overhaul was completed in March 2020, achieving smooth operation of the two ammonia and alcohol lines, and adjusting and optimizing key process indicators. The current daily output of liquid ammonia is approximately 1,080 tons, which is higher than that in 2019. The year-on-year increase was 9.06%, and the daily methanol production was approximately 1,100 tons, a year-on-year increase of 7.02%.

The third is to actively develop new products and new projects in terms of technological innovation and measures. In order to further reduce costs and increase efficiency, extend the industrial chain, and enhance the company's ability to resist risks: ① Use existing people, machines, materials, and materials to build a new automotive urea project (capacity of 50,000 tons/year). The filing procedures and Equipment selection and other work are planned to be put into production in August. ② It is planned to build a 100,000-ton compound fertilizer project. The site preparation and bidding work have been completed and it is planned to be put into production by the end of this year. ③ A new coal conveying belt and automatic coal unloading machine project has been built to improve the efficiency of coal transfer and reduce costs. It is expected to save about 15 million yuan in coal transfer costs every year. ④ Continue to promote the energy-saving renovation project of permanent magnet fans for boiler induced draft fans and powder exhaust fans. The six fans can save 1.2 million yuan in electricity bills every year, and the investment payback period is about 1.4 years. ⑤Continue to promote the hydraulic turbine renovation project. The renovation of 3 units can save 1.21 million yuan in electricity bills every year. ⑥Completed the technical renovation plan for the thermoelectric boiler blockage clearing machine and gasified coal slurry pump expansion, and signed the contract. ⑦Automated palletizer and loading systems are enabled. ⑧ Starting from June, we will start to implement unpowered dust removal and unattended technical transformation step by step, which can effectively improve the working environment and improve labor efficiency.

During the reporting period, Tongzi Chemical achieved operating income of 636.2462 million yuan, a year-on-year decrease of 102.7032 million yuan or 13.9%. The main reason for the decrease in operating income is that the sales prices of the main products urea and methanol dropped by 10.64% and 25.95% respectively compared with the same period in 2019; Tongzi Chemical achieved a total profit of 4.4455 million yuan, turning a loss into a profit.

(2) Pharmaceutical manufacturing business

In the first half of 2020, the company overcame the impact of the new coronavirus epidemic on business operations, while taking protective measures and ensuring the health of employees. Under the premise, work and production began to resume at the end of February, making full use of the advantages of Internet informatization. Most positions can work normally, which has played a positive role in the company's resumption of production and ensuring market supply.

During the reporting period, the company’s pharmaceutical business mainly focused on:

First, the company’s glimepiride tablets won the national procurement bid (GY-YD2019-2) in the first place. Three years. In the first half of the year, the company took advantage of the winning bid for delivery of glimepiride tablets to drive the sales of the company's other products. Judging from the situation of national procurement and distribution implementation for more than three months, sales increased significantly. It is ensuring the distribution of medical terminals in provinces and regions that have won the bid. Under the premise, the marketing team took advantage of the company's low bidding price for glimepiride to gain market share in non-bidden areas. In the retail market, glimepiride tablets took advantage of doctors' prescriptions to enhance the brand status of glimepiride tablets.

The second is that the company actively promotes GMP certification for the production of methimazole raw materials and resumes the production of methimazole enteric-coated tablets. Judging from the current public information, methimazole tablets (5mg) are in short supply in the country. Catalog varieties are in short supply in the market. On May 12, 2020, Shengjitang Pharmaceutical applied to the Guizhou Provincial Food and Drug Administration to resume production in accordance with relevant regulations. On July 29, it received a letter approving the marketing of Shengjitang Pharmaceutical’s methimazole enteric-coated tablets. At present, the company can purchase raw materials from legal sources for production and put them on the market after passing the inspection.

Third, in terms of marketing, the company continues to adhere to the idea of ??building its own team, taking advantage of the opportunity of winning the bid for glimepiride tablets to establish cooperative relationships with large businesses across the country and recommend the company's second-tier products. Adhere to the results orientation, strengthen internal management, deepen marketing management reform, and improve refined market management. Based on the characteristics of product sales and bid winning situations in each province, we conduct a one-by-one analysis of sales customer terminals in various regions, counties (cities), identify market gaps, and analyze competition. The advantages and disadvantages of the product, and formulating the company's product sales competitive strategy. For the "OTC" network, the company continues to leverage the advantages of "chronic disease management cooperation" to cultivate loyal customers for corporate cooperation and ensure sustainable growth of the company's sales.

The fourth is to ensure the supply of raw materials for Chinese patent medicines. After the company's Chonglou Jiedu Tincture entered the national medical insurance catalog, the market demand is good. However, the current price of the raw material Chonglou is still high, which has seriously affected the market. Product market coverage and terminal promotion. In the first half of this year, the company started the cultivation of raw medicinal materials in Chonglou, and vigorously developed the cultivation of Chonglou through a cooperation model between the company and farmers, ensuring the supply of raw materials for Chonglou Jiedu Tincture in the future.

During the reporting period, Shengjitang Pharmaceutical *** produced 18.36 million boxes of medicines, an increase of 27.50% over the same period last year. Among them: 17.06 million boxes (bottles) of western medicine, an increase of 29.24% over the same period last year, 1.31 million boxes (bottles) of traditional Chinese medicine, an increase of 10.08% over the same period last year, health care products are not produced due to relocation, and medical equipment has stopped production. 17.01 million boxes of medicines were sold, an increase of 17.80% over the same period last year, and operating income was 116.19 million yuan, a decrease of 38.66% over the same period last year. Among them: 16.01 million boxes (bottles) of Western medicine, an increase of 30.91% over the same period last year, and an operating income of 104.53 million yuan, a decrease of 32.54% compared with the same period last year; 1 million boxes (bottles) of traditional Chinese medicine, a decrease of 51.92% over the same period last year, and an operating income of 1,166 million, a decrease of 59.95% compared with the same period last year, and a net profit of 7.03 million yuan, a decrease of 85.41% compared with the same period last year.

2. Possible risks

1. Fertilizer and chemical industry

Raw fuel and coal supply risks: National overcapacity reduction policy and strengthening coal industry safety supervision, As a result, coal production in Guizhou Province has dropped significantly, and the company needs to purchase a large amount of northern raw fuel coal. Due to transportation capacity constraints, the unit's production capacity may not be fully utilized.

Risk of rising raw coal prices: The company currently purchases a large amount of Shaanxi Yulin bituminous coal, and many domestic companies that use anthracite as raw materials are transforming a large number of devices to use Shaanxi bituminous coal, although overall coal prices will not rise in the next two years. However, due to the gradual increase in the use of bituminous coal chemical companies, the price of bituminous coal may rise, resulting in an increase in the production cost of the company's products.

Risks of environmental protection supervision: Although the company has been committed to environmental protection investment, added multiple sets of environmental protection treatment facilities, and strictly implemented laws and regulations related to environmental protection, with the strengthening of environmental protection supervision and the distance between Tongzi Chemical Production Equipment The county is less than 10 kilometers away. The company may further increase its investment in environmental protection due to environmental reasons, and the environmental emissions may not meet the standards due to device accidents, which will affect the production capacity of the device.

Product market risk: The fertilizer market in 2020 will be a competition for the stock market. Oversupply continues, declining sales have become the new normal for many companies, and competition will be extremely fierce. In 2019, the No. 1 Central Document proposed for the first time the realization of negative growth in the use of chemical fertilizers. By the end of 2019, 15 provinces across the country had announced negative growth in the use of chemical fertilizers in their regions, with some areas declining for several consecutive years. This indicates that China's chemical fertilizer consumption has passed its peak and has officially entered an era of negative growth, with consumption continuing to decrease.

Risk of significant fluctuations in methanol prices: The price of oil in 2020 will be affected by geopolitics, as well as the large import of foreign methanol, which may cause domestic methanol prices to remain at a low level, leading to a significant drop in the company's expected profits.

2. Pharmaceutical industry

Industry policy risks: The pharmaceutical industry is one of the industries most profoundly affected by policies. As the country strengthens the reform of the medical system and regulates the pharmaceutical industry Strictly speaking, industrial integration and business model transformation within the industry are inevitable. Medical reform policies will directly affect the development trend of the entire pharmaceutical industry. The implementation of national procurement, "consistency evaluation", production quality supervision, environmental protection and other policies and measures across the country are also directly related to the production costs and profitability of the entire pharmaceutical industry. , which in turn affects the company's production and operations. As China's pharmaceutical market is vast and has great development potential, it has attracted major pharmaceutical companies in the world to enter one after another. At the same time, companies in other industries are also competing to get involved. In addition, there are already domestic pharmaceutical manufacturers all over the country, resulting in a large number of domestic pharmaceutical manufacturers. The market is fragmented and the market concentration is low, which makes the market competition continue to intensify. Competition among domestic drug manufacturing companies is becoming increasingly fierce, and relevant reform measures such as liberalizing drug prices and implementing medical insurance payment prices are gradually being implemented. These factors have increased the risk of product price uncertainty for drug manufacturing companies. In 2020, in the face of the acceleration of medical reform, the implementation and advancement of a series of policies such as the increase in nationally purchased varieties, the two-invoice system, control of the growth rate of medical expenses, restrictions on auxiliary drugs, adjustment of medical insurance payment prices, and the normalization of GMP unannounced inspections are all for the company. Pharmaceutical manufacturing operations bring challenges. With the introduction of new regulations such as the new environmental protection law, environmental protection requirements are increasing day by day. Intensified control over the emission of pollutants, especially pollutant emissions from the production of raw materials, will increase the company's production safety, compliance and environmental management risks.

R&D risks: New drug R&D is a high-investment, high-risk, long-cycle job that requires high personnel quality. Since the launch of the national consistency evaluation of generic drugs, new drug R&D-related issues have been frequently launched. Policies have added more uncertain factors to the launch of new drugs. Shengjitang Pharmaceutical is a production and R&D enterprise mainly engaged in chemical drugs. New drugs such as acarbose and metformin hydrochloride sustained-release tablets are currently in the clinical trial and review stages. Whether the product can complete R&D registration as expected is uncertain.

Other risks: The production and operation of Shengjitang Pharmaceutical are closely related to raw material procurement costs and production cost control. In recent years, the procurement costs of chemical raw materials glimepiride and acetyl glutamide have increased year by year, and the company’s exclusive varieties The price of Chonglou, the traditional Chinese medicine raw material for Chonglou Jiedu Tincture and Compound Chonglou Tincture, has remained high, and rising energy, power, and labor costs will bring the risk of reduced product profitability to companies.

3. Analysis of core competitiveness during the reporting period

1. Fertilizer and chemical industry:

1.1 Brand and channel advantages: The company's leading product "Chi" brand urea It has a high reputation in the same industry across the country. "Chi" brand urea has a high market share in Guizhou, strong brand effect, and high brand loyalty of end customers. The company's "Chi" brand urea has been operating in Guizhou for a long time, and has controlled a dealer team with strong financial strength, inventory strength, and terminal channel control. It can not only resist the penetration of foreign brands into Guizhou's marginal markets, but also be able to lead the market price and have price The role of weather vane.

1.2 Main products and geographical location advantages: Tongzi Chemical has an annual production capacity of 300,000 tons of synthetic ammonia, 300,000 tons of methanol, 520,000 tons of urea, and by-products of 100,000 tons of ammonium sulfate and 20,000 tons of sulfur. . Tongzi Chemical adopts the world's most advanced Texaco technology. The quality of methanol can keep pace with the quality of natural gas units. The high quality ensures that Tongzi Chemical has more downstream methanol sales channels. In addition to the traditional downstream formaldehyde and dimethyl ether, Tongzi Chemical has high-quality products. High-quality methanol can also be used in fine chemical fields such as polyformaldehyde, MTBE, and methyl chloride. Tongzi Chemical is located on the G75 Lanhai Expressway, which is conducive to radiating the Guangxi market and is adjacent to Sichuan and Chongqing. The market price in Guangxi is relatively high in China, and it is the most important sales market for Tongzi Chemical. Tongzi Chemical takes advantage of Guangxi’s alcohol return emptying vehicles and has strong market competitiveness in the Guangxi market. The Sichuan-Chongqing market is the second most important market for Tongzi Chemical. Relying on strong logistics capabilities, inventory pressure can be quickly relieved when the inventory is large.

1.3 Production technology management advantages: The company’s existing fertilizer equipment operation and management level has always been at the forefront of the industry, and energy consumption control is at the advanced level of similar equipment; the company’s long-term and unremitting safety production management and excellent production technology The backbone team maintains the company's high level of production technology management and ensures long-term, low-cost operation of the device.

2. Pharmaceutical industry:

2.1 Variety resource advantages

2.1.1 Diabetes drug professional advantages:

Shengjitang Pharmaceutical The diabetes product line covers most oral preparation varieties and has strong market competitiveness in the diabetes drug market segment. The main products include metformin hydrochloride tablets and metformin hydrochloride enteric-coated tablets (0.25g, 0.5g). Glimepiride tablets (2mg, has passed the consistency evaluation and won the first national procurement bid), rosiglitazone hydrochloride tablets, gliclazide tablets (II), glipizide tablets, etc., with complete categories , and all belong to the national 2019 version of the medical insurance catalog. In addition, Shengjitang Pharmaceutical has more than 20 years of brand advantages in the field of diabetes, and consumer compliance is high.

2.1.2 National exclusive Miao medicines and patented varieties

Shengjitang Pharmaceutical has 5 exclusive patented varieties, Chonglou Jiedu Tincture, Compound Chonglou Tincture, Danqing Capsule, Jiulong Jiedu Capsules and Bo Xingkang Medicinal Films, among which, Compound Chonglou Tincture and Bo Xingkang Medicinal Films are products for women and children developed with state support.

2.1.3 Nervous system drugs

Shengjitang Pharmaceutical owns nervous system drugs Acetyl Glutamide Injection (exclusive specifications), Donepezil Hydrochloride Tablets, Venla Hydrochloride There are three varieties of Faxin Tablets, among which Donepezil Hydrochloride Tablets and Venlafaxine Hydrochloride Tablets belong to the 2017 version of the national medical insurance varieties (Category B).

2.1.4 Special varieties of Chinese patent medicines

Eucommia ulmoides is an authentic medicinal material in Guizhou with high output and good quality. Shengjitang Pharmaceutical has the exclusive specification resource advantage of sugar-free eucommia granules. Its functions are to nourish the liver and kidneys, strengthen muscles and bones, prevent miscarriage, and lower blood pressure. It has definite curative effect on women with fetal dysphoria, threatened abortion, hypertension, etc. during pregnancy.

2.2 Brand advantage

Shengjitang Pharmaceutical has a number of provincial-level well-known products, among which "Shengping" glimepiride tablets won the first place in the national procurement (GY-YD2019-2) Won the bid for No. 1 and ranked first in sales volume in the hospital prescription market. "Shengmin" rosiglitazone hydrochloride tablets and "Shengtuo" metformin hydrochloride enteric-coated tablets were respectively rated as famous brand products in Guizhou Province; "Shengmin" hydrochloric acid Rosiglitazone tablets and "Shengte" metformin hydrochloride enteric-coated tablets were awarded well-known trademarks in Guizhou Province respectively. After more than 20 years of unremitting efforts, Shengjitang Pharmaceutical has achieved a high reputation in the field of diabetes, and has won honors such as "Top 100 Private Enterprises in Guizhou Province in 2018".

2.3 Marketing network advantages: After nearly 20 years of development, Shengjitang Pharmaceutical has established a complete sales network. Shengjitang has rationally used marketing strategies, guided corporate marketing efforts scientifically and standardizedly, and broadened the market. Channel, Shengjitang Pharmaceutical sales network is subdivided into prescription business, grassroots hospital network and OTC chronic disease service sales system. In particular, OTC chronic disease services use the company's diabetes and chronic disease education academic tutoring system to establish cooperation with many large domestic chain companies. With the implementation of the national "graded diagnosis and treatment" policy, Shengjitang Pharmaceutical's chronic disease service advantages will become more obvious.

2.4 Quality advantage: Shengjitang Pharmaceutical has always organized production in accordance with GMP standards and formulated a complete quality management system. The quality management system complies with the "ISO9001:2008" standard and strictly implements relevant national drug standards. Shengjitang Pharmaceutical organizes production in accordance with production quality management standards and adopts strict quality control measures for all aspects of production, especially key quality control points, that is, controlling the entire manufacturing process from raw and auxiliary materials entering the factory to semi-finished products and final finished products. This eliminates possible contamination and errors and ensures the quality of medicines.