Cuu Long Pharmaceutical: New path after realignment

GMS F.I.T 2020: Confidently expanding production and business, paving the way for new development steps
26 June, 2020

Pharmaceutical Cuu Long with valid alterations after the restructuring process has proved the right direction of the Board of Directors and the efforts of all employees.

Two years before I had the opportunity to visit Cuu Long Pharmaceutical, I was impressed by the sprawling construction site and the skilled workers operating somewhat old machinery and equipment to produce capsules serving the demand of domestic and export market. The construction site today has been completed and has become the company’s No. 3 capsule factory.The capsule production segment has always been the company’s strength in the Vietnamese market, along with the new factory always operating at full capacity of 3 shifts, producing 4,743 million capsules to meet increasing contracts from the domestic drug manufacturing companies.


Basic investment in the construction of the No. 3 capsule factory is a turning point decision, and is a good example that truly reflects the process of restructuring the company and the whole corporation. Before reshaping, Cuu Long Pharmaceutical struggled with business development problems based on the old foundation with limited capacity and technology.The purchase of the Euvipharm factory at the time showed a naive belief in expanding the business bases on the scale through acquisition. However, Cuu Long Pharmaceutical was unable to create the expected resonance from this acquisition, but it had to incur a consolidated loss because the Euvipharm factory did not work as expected during and after the transfer.The strategic innovation comes from the simple philosophy that focusing on exploiting traditional strengths and deciding to build the No. 3 capsule factory as one of the steps to execute that philosophy.

Nevertheless, no decisions pay no price. Well invested in building factories with modern technology and large capacity also means sacrificing short-term benefits for long-term development goals. This dedication is seen in many respects, but for investors it is the 2018 business results that does not leave much impression with the sharp decline in profits.

Dược Cửu Long: Chặng đường mới sau tái cơ cấu - Ảnh 1.

Outside of Cuu Long Pharmaceutical’s empty capsule factory

Initial results

After all that cost may have been too small. The year 2019 marks the completion and operation of the No. 3 capsule factory. Increased production capacity along with new contracts from major domestic pharmaceutical and traditional medicine production companies reflect the philosophy which focusing on traditional strengths being on the right direction.Above and beyond, the attempt to adjust the decision purchasing the Euvipharm factory from the previous day not only had no additional financial burden, but on the contrary, it also brought profits from the transfer of shares when the management of the company considered to divest from this factory. It is a good property but not compatible with Cuu Long Pharmaceutical.

The sale of Euvipharm was completed on August 30th, 2019, meaning that the company will not have to suffer from consolidation losses, and bring large cash flows to serve the company’s strength in the field of pharmaceuticals, manufacturing capsules and medical equipment. Specifically, in addition to the plan to build a new capsule factory No. 4 and a medical device factory, the revenue from Euvipharm has been used reasonably and effectively with the completion of the investment in major overhaul two old factories, factory numbers 1 and 2, plus two factories Betalactam and Non-Betalactam.Particularly, the company has added modern equipment to the laboratory of the Research and Development (R&D) department, promising to complete the list of new products for the company in 2020 and 2021.

Dược Cửu Long: Chặng đường mới sau tái cơ cấu - Ảnh 2.

Phòng thí nghiệm với thiết bị tiên tiến là một khoản đầu tư quan trọng của Dược Cửu Long có được nhờ bán Euvipharm.

Laboratory with advanced equipment is an important investment of Cuu Long Pharmaceutical thanks to the sale of EuvipharmUltimately, the transformation of the restructuring process has been shown in the financial statements. The year 2019 showed an impressive result from operating profit even though the company actively reduced revenue, especially reducing sales of low profit margin products. Profit after tax reached 88.5 billion compared to only 12.5 billion in 2018. In the eyes of investors, the improvement in the efficiency of business activities was seen. Next step  Those are undoubted results that reflect a promising future. However, it is not yet a limit of potential strengths of Cuu Long Pharmaceutical. Two of the company’s next strategic steps are the expansion of its fourth capsule factory, increasing its capacity to 2.4 billion capsules a year, and building its Medical Supplies factory based on Benovas Medical Equipment Joint Stock Company with a capacity of 480 million products / year.

In 2020, Benovas Ecology has applied for a visa for two anticancer drugs, which are high-demand cancer treatments in Vietnam, promising to bring millions of dollars in sales by 2020, positively contributing to revenue growth as well as profit of Cuu Long Pharmaceutical. The strategic steps along with the professional focus on perfecting the sales system, developing personnel and building a core product group system with good profit margins are expected to bring the company a sustainable business practice development and financial stability. In 2020, the company expecting a revenue growth of about 12% and a gross profit of about 49% compared to 2019.

Dược Cửu Long: Chặng đường mới sau tái cơ cấu - Ảnh 3.

Research and Development is an important department of Cuu Long Pharmaceutical’s operation. It is expected that by 2020 and 2021, dozens of new products will be completed to add to the company’s current product portfolio, moving towards higher profit margins.

Enterprise value

In a conversation with the group’s financial strategy team, I got access to the company’s targeted numbers over the next 5 years. While testing to include a stock valuation model based on operating cash flow for businesses with different assumptions about the business cycle and the ability of the 4 capsule factory as well as the medical equipment factory in the five years from 2020 to 2024, followed by a steady growth assumption, plus along with the current market risk assumption, the company’s financial strategy team is confident that the value of each share will be around 49,900 dong.

That value is the basis for the GMS to approve a resolution to issue the increasing 25% capital for the above-mentioned strategic projects, especially the construction of a factory meeting GMP-EU standards, yet at a price of not less than VND 45,000 / share. For investors, prices are for reference only and may vary depending on market conditions. Except for Cuu Long Pharmaceutical, the value of shares and responsibilities to shareholders is something that the company leadership and employees have been striving to create and protect.

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