Modern Chinese Medicine Announces Year 2022 Interim Results; Expand distribution network to seize industry opportunities

PERFORMANCE HIGHLIGHTS

• The Group posted a consolidated revenue of approximately RMB196.1 million for the six months ended 30 June 2022, representing an increase of approximately 14.1%
• Gross profit increased by 9.9% to RMB86.4 million
• Net profit increased by 13.1% to approximately RMB49.9 million
• The increase in revenue was primarily driven by the surge in revenue generated from the sales of Vigour and Vitality Supplement Pill, Fever-removing and Detoxification Pill and Additional Ingredient Huoxiang Zheng Qi Pill
• Northeast, the PRC remained as the largest contributor (55.7%) to the Group�s total revenue
• The Group has currently established a distribution network for 83 distributors covering about 40 cities in the PRC

HONG KONG SAR – Media OutReach – 25 August 2022 – Modern Chinese Medicine Group Co., Ltd. (“the Company” or “Modern Chinese Medicine”, together with its subsidiaries, the “Group”, HKEX stock code: 1643) announced its Interim results for the six months ended 30 June 2022 (“the Period”). The Group has risen to the challenges brought by the COVID-19 pandemic and recorded remarkable growth. The Group posted a consolidated revenue of approximately RMB196.1 million for the six months ended 30 June 2022, representing an increase of approximately 14.1% as compared to the corresponding year in 2021. The gross profit was approximately RMB86.4 million, representing an increase of approximately 9.9% while the overall gross profit margin decreased slightly to approximately 44.0%. Profit attributable to the owners of the Company increased to approximately 49.9 million for the six months ended 30 June 2022, representing an increase of 13.1%.

BUSINESS REVIEW

In the first half of 2022, the PRC struggled to contain the outbreak of COVID-19 pandemic through lockdown cities. The implementation of dynamic zero-COVID policy, especially in Shanghai, in particular, has exerted a significant adverse impact on the economy at large. While the COVID-19 pandemic may have posed difficulties to the production and operation of some pharmaceutical companies, the industry, overall, is still experiencing solid growth with favourable support from various government policies for the promotion of the proprietary Chinese medicine (“PCM”) industry. The COVID-19 pandemic has also brought the outstanding contribution of the traditional Chinese medicine (“TCM”) to the limelight.

The Group is principally engaged in the production of PCM, in particular over-the-counter and prescribed medicines intended for use by the middle-aged and the elderly in the PRC. As one of the leading companies, the Group currently has about 60 types of PCM products, with intended therapeutic effects for the treatment and/or alleviation of qi – deficiency and blood-stasis condition, cardio-cerebrovascular condition, digestive and gastrointestinal condition, gynaecological condition, respiratory system condition and nervous system condition, etc. Some of the Group’s major products are believed to be having the intended therapeutic effect for the treatment of the symptoms of COVID-19 and/or similar illness.

Well-established distribution network

Despite the complicated and difficult situation in the first half of the year, thanks to the experience gained in coping with the pandemic as well as difficulties and challenges in the past two years?the Group still managed to strategically expand its distribution network. The Group has currently established a distribution network for 83 distributors covering about 40 cities in the PRC, which are in turn served and administered by over 37 marketing staff members with relevant experience in the TCM industry.

The distribution network would not only help to develop the business operations geographically from Northeast and Huanan to other areas in the PRC, but also allow the Group to penetrate in reasonably extensive width and breadth both in Northeast and Huanan, the PRC, where the Group is strategically targeting at in view of the Group’s established footprint and the large population there. For the Period, the revenue contribution from Northeast and Huanan amounted to approximately RMB109.2 million and RMB32.1 million respectively (six months ended 30 June 2021: approximately RMB92.3 million and RMB30.0 million respectively). The Group’s distribution network and distributorship model will continue to support further development of the Group’s business operations in the foreseeable future.

Stable Profitability

The Group posted a consolidated revenue of approximately RMB196.1 million for the Period, representing an increase of approximately RMB24.3 million or 14.1% as compared to the six months ended 30 June 2021. The increase in revenue was primarily driven by the surge in revenue generated from the sales of our major products, namely Vigour and Vitality Supplement Pill, Fever-removing and Detoxification Pill and Additional Ingredient Huoxiang Zheng Qi Pill due to the improved marketing tactics adopted by existing distributors. The Last two products are believed to have intended therapeutic effect for the treatment of the symptoms of COVID-19 and/or similar illness.

Vigour and Vitality Supplement Pill and Circulation Enhancement Pill were the two top selling products for both of the Period and the six months ended 30 June 2021. These two products contributed approximately 45.5% and 46.4% of the Group’s total revenue for the Period and the six months ended 30 June 2021, respectively.

The Northeast remained as the largest contributor to the Group’s total revenue for the Period. It contributed over 50.0% of the total revenue of the Group for both of the Period and the six months ended 30 June 2021. The increase in total revenue of the Group by approximately 14.1% during the Period as compared to that of the six months ended 30 June 2021 was mainly due to the sales growth in the Northeast and Huadong by approximately RMB16.9 million and approximately RMB2.5 respectively.

The Group manages the overall gross profit margin to ensure the profitability of the Group while allowing flexible price adjustments for individual products. The overall gross profit margin for the Period decreased slightly to approximately 44.0% as compared to approximately 45.7% for the six months ended 30 June 2021. It was mainly due to the relatively lower gross profit margin of Vigour and Vitality Supplement Pill, the sales revenue of which increased by approximately RMB12.7 million during the Period. On the other hand, the production costs for other products also augmented due to the increased purchase prices of certain major ingredients during the Period, which exerted a negative impact on the overall gross profit margin.

Looking ahead, Ms. Zhang Hongli, Executive Director of Modern Chinese Medicine Group Co., Ltd. said, ?Looking ahead, the recurrent COVID-19 pandemic remains to be one of the most unstable factors in the course of world economic recovery, yet TCM and the medical, health and hygiene forces of various countries still carry the mission of safeguarding the common destiny of human health. Along with the consumption upgrades in China and the continuous release of benefits from favorable government policies, the TCM industry will head into a golden era. The Group shall adhere to our the development strategies and exploit the favorable government policies, in order to further promote the diversity of our product portfolio, boost the revenue and create value for shareholders.?

Hashtag: #ModernChineseMedicine

The issuer is solely responsible for the content of this announcement.

About the Group

Modern Chinese Medicine principally engages in the production of proprietary Chinese medicine and offers both over-the-counter and prescribed medicines intended for use by the Middle-aged and the Elderly in the PRC. According to the Euromonitor International Report, the Group was one of the leading non-listed companies engaged in the production of PCM in 2019 in terms of the sales of Qi-deficiency and blood-stasis (????) PCM pills and cardio-cerebrovascular (????) PCM capsules in Northeast, the PRC.