Summary of the Key Points
Jiuzhoutong, the leading domestic pharmaceutical distribution company, saw its revenue increase by 7.6% year-on-year in the first half of this year, but its net profit decreased by nearly 17%. During the semi-annual performance briefing, the company deliberately avoided addressing tough issues. It only answered questions about strategic highlights and positive aspects of business innovation, completely ignoring three core problems raised by the media: profit growth lagging behind revenue growth, billions in unpaid debts, and chronic cash flow deficits. Behind these figures lies a reality of years of increasing revenue without corresponding profit growth, over 35 billion yuan in unpaid invoices, high debt levels, and a cumulative financing of 51.1 billion yuan from the capital market to cover these financial gaps.
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Detailed Explanation
1. The Performance Briefing Turned into a Praise Session: Tough Questions Were Ignored
Typically, a performance briefing for a listed company is an opportunity to provide transparency to all shareholders, regardless of the nature of the questions. However, Jiuzhoutong's briefing was a complete departure from this norm:
- During the 1-hour meeting, out of 20 questions, 17 were about positive aspects such as new strategies and the impact of AI, and even questions asked towards the end of the meeting were promptly answered. In contrast, the three critical questions regarding operational flaws raised by the media were ignored throughout the entire session, with no staff member responding to them after the meeting ended.
- It's like attending a parent-teacher conference where the teacher asks about a child's declining grades, but you instead boast about the child's recent awards in art or running, clearly avoiding the difficult truths.
2. More Drugs Sold, but Less Profit: Three Years of “Pseudogrowth”
As one of the largest pharmaceutical wholesalers in China, Jiuzhoutong should have seen its profits increase with higher sales. However, its performance in recent years has been counterintuitive:
- Its net profit peaked in 2020 at 3.075 billion yuan, but it has since declined steadily. In 2024, revenue increased, but non-recurring net profit decreased by 7.47%; in 2025, revenue grew by 6.3%, but net profit plummeted by 10%; in the first half of 2026, revenue increased by 7.6%, yet net profit fell by nearly 17%.
- The company attributed this to a one-time gain from selling financial products (public REITs) last year, but even without this, its profit growth from regular drug sales was only 3.2%, less than half of its revenue growth. It's like running a small shop where sales increased by 70,000 yuan, but actual profits from sales only increased by 3,000 yuan, indicating significant profit erosion.
3. Over 35 Billion Yuan in Unpaid Invoices: For Every 100 Yuan in Revenue, Only 41 Yuan is Cash
Jiuzhoutong is grappling with a huge backlog of unpaid invoices: hospitals and pharmacies often purchase goods on credit, delaying payment for months or even half a year. As of June, the total value of these invoices amounted to 35.672 billion yuan, an increase of 6.8 billion yuan from the previous year. This means that more than 40% of the 87.2 billion yuan in revenue generated in the first half of the year came from uncollected cash.
- The company claims it collects debts at the end of each year, but even after that, the balance of unpaid invoices at the end of 2023-2025 remained over 25 billion yuan, resulting in annual bad debt losses of over 200 million yuan. It's like delivering goods to supermarkets, with over 400,000 yuan in sales going unpaid each year, leaving the company with little cash on hand.
4. Chronic Cash Flow Deficits: 51.1 Billion Yuan in Six Years of Financing
A negative operating cash flow means that the cash received from sales is not enough to cover expenses such as purchasing goods and paying salaries. Over the past decade, Jiuzhoutong has consistently had negative cash flows in the first half of the year. In the first half of 2026, it spent 2.78 billion yuan, barely balancing its cash flow by collecting debts at the end of the year.
- The company currently owes 15.38 billion yuan in short-term bank loans, a 34% increase from last year, with a total debt-to-asset ratio approaching 70%. It spent nearly 600 million yuan in interest alone this year, 18% more than last year. To cover these gaps, it has issued preferred stocks three times, along with additional equity and convertible bonds, raising a total of 51.1 billion yuan from the capital market. All this money has been used to pay off debts and maintain liquidity. Now, it plans to issue another 2.8 billion yuan in preferred stocks, indicating that its actual business profits are not sufficient to cover its expenses, and it relies on continuous financing from the stock market and banks.
5. Warning to Ordinary Investors
Companies that appear to be industry leaders with annual revenue growth often experience nominal growth. Most of their profits come from uncollectible invoices, and their internal ability to generate cash is weak. They rely on external financing to survive and avoid addressing critical issues in their briefings. With low transparency, a tightening of the financing environment or widespread delays in payments by hospitals could lead to a financial crisis. Ordinary investors who focus solely on industry leadership and revenue growth risks making serious mistakes.