After the explosive revelation of a “corruption case” involving Yunnan Baiyao earlier this month, on the evening of May 26th, Yunnan Baiyao issued an announcement stating that directors Chen Fashu, Lu Hongdong, and Chen Yanhui had submitted their resignation reports.
It is worth noting that since March of last year, Wang Minghui, the former chairman of Yunnan Baiyao, and several other executives have successively resigned. Earlier this month, it was reported that some of the executives who had already left the company were being investigated. Therefore, with the departure of three directors at this critical juncture, it inevitably gives rise to speculation.
It is worth mentioning that Yunnan Baiyao has consistently been the leading brand in the Chinese toothpaste market in recent years. So, will this personnel change at Yunnan Baiyao have an impact on its position as the leader in the toothpaste industry?
Chen Fashu had been deeply involved in Yunnan Baiyao’s “mixed ownership reform”
Public information reveals that Yunnan Baiyao, a century-old traditional Chinese medicine company, made its debut on the A-share market in 1993. Over the course of 30 years, the company has transformed from a traditional Chinese medicine enterprise into one of the leading companies in China’s large health industry.
On May 26th, Yunnan Baiyao issued an announcement stating that due to work adjustments, Chen Fashu had applied to resign from his positions as a director of the 10th Board of Directors, chairman of the Board’s Strategic Committee, and member of the Remuneration and Assessment Committee. After resigning, Chen Fashu would no longer hold any positions in the company or its subsidiaries. Lu Hongdong applied to resign from his positions as a director of the 10th Board of Directors and member of the Board’s Strategic Committee. After resigning, Lu Hongdong would still serve as the deputy secretary of the company’s Party Committee. Chen Yanhui applied to resign from his positions as a director of the 10th Board of Directors and member of the Nomination Committee. After resigning, Chen Yanhui would no longer hold any positions in the company or its subsidiaries. It is worth noting that Chen Fashu and Chen Yanhui are father and son.
As of the date of the announcement, Chen Fashu held 1,252,749.5 shares of Yunnan Baiyao, Lu Hongdong did not hold any company shares, and Chen Yanhui held 177,345 shares of the company. Yunnan Baiyao stated that the resignations of the directors would not cause the number of board members to fall below the legally required minimum and would not affect the normal operation of the board of directors and the company.
Among the three directors who resigned, Chen Fashu is the most noteworthy because he had been deeply involved in Yunnan Baiyao’s “mixed ownership reform.” It is understood that as early as 2015, Chen Fashu began increasing his holdings of Yunnan Baiyao in the secondary market and entered the list of the top ten shareholders. From 2016 to 2017, Yunnan Baiyao initiated the “mixed ownership reform,” and Chen Fashu successfully became part of the core shareholders of Yunnan Baiyao.
Subsequently, as Yunnan Baiyao absorbed its parent company, Baiyao Holdings, and completed its overall listing, the Yunnan Provincial State-owned Assets Supervision and Administration Commission and Xindu, controlled by Chen Fashu, along with their concerted action parties, held a 25.14% stake in Yunnan Baiyao, ranking as the largest shareholders.
Therefore, after the “mixed ownership reform” was finalized, Chen Fashu began to officially step into the foreground of Yunnan Baiyao. In August 2019, during the board of directors’ election at Yunnan Baiyao, Chen Fashu and Chen Yanhui, representing Xindu Industrial, were elected as new directors. At the same time, Yunnan Baiyao amended its articles of association and established the position of “co-chairman of the board,” which was held by Chen Fashu. Up to now, Chen Fashu has served as a director and co-chairman of the board at Yunnan Baiyao for nearly 5 years.
It is worth mentioning that due to his expertise in the investment field, Chen Fashu is known as the “Chinese Buffett.” Consequently, in recent years, Yunnan Baiyao’s large-scale stock trading activities have sparked market discussions, leading to widespread speculation about Chen Fashu’s involvement.
In 2018, Yunnan Baiyao entered the stock trading arena. Since then, Yunnan Baiyao’s trading financial assets have increased, reaching a peak of 11.2 billion yuan. In 2020, its net income from fair value changes reached 2.24 billion yuan, accounting for 32.94% of the total annual profit.
However, the favorable times did not last, and Yunnan Baiyao’s investments were not immune to the significant adjustments in the A-share market in recent years. In 2021, Yunnan Baiyao suffered a disastrous loss due to stock trading. That year, Yunnan Baiyao incurred a loss of up to 1.929 billion yuan from fair value changes, causing its net profit to halve, decreasing by 49.17% to 2.804 billion yuan compared to the previous year. Yunnan Baiyao attributed the loss to the significant decline in the market value of its holdings in companies such as Xiaomi and Hengrui Medicine during the reporting period, resulting in a loss of 1.614 billion yuan during the period. In 2022, Yunnan Baiyao suffered a further loss of nearly 620 million yuan from stock trading. In other words, Yunnan Baiyao has incurred losses of over 2.2 billion yuan from stock trading in the past two years.
Subsequently, after experiencing ups and downs in the stock market, Yunnan Baiyao began to tighten its investment in stock trading. It announced that, based on its existing risk control measures, it would strictly control the scale of secondary market investments and gradually reduce holdings without further increases.
Multiple executives are investigated after resigning
In fact, the reason why the departure of Chen Fashu and his son received widespread attention is twofold. On one hand, it is based on Chen Fashu’s previous deep involvement in Yunnan Baiyao’s mixed ownership reform, which has given him a certain level of visibility in the industry. On the other hand, several media outlets reported earlier this month that “Yunnan Baiyao has been involved in a nest case, and former Chairman Wang Minghui, former Chief Operating Officer and Senior Vice President Yin Pinyao, and five other former executives, have been taken away for investigation by the disciplinary inspection and supervision departments from early 2023 to early 2024 due to their involvement in the same matter.”
It is worth noting that many of the executives under investigation mentioned above have resigned one after another since the beginning of last year. In particular, the resignation of Wang Minghui, the former chairman of Yunnan Baiyao, in March last year attracted significant attention. Public information shows that Wang Minghui had worked at Yunnan Baiyao for 25 years and served as chairman for a remarkable 19 years, making him regarded as a “key figure” of the company by the public. In November 2022, Wang Minghui was just reelected as chairman of Yunnan Baiyao for a three-year term until November 2025. However, when he applied for resignation, his term had not yet expired.
In the same month as Wang Minghui’s departure, Wang Jin, the Chief Sales Officer and Senior Vice President of Yunnan Baiyao, also resigned and relinquished all positions in the company and its subsidiaries due to personal reasons.
In February of this year, it was mentioned in the reports that Yin Pinyao, the former Chief Operating Officer and Senior Vice President who was taken away for investigation, also resigned for personal reasons. Along with him, the company’s Chief Human Resources Officer, Yu Juan, also resigned.
Therefore, as a century-old pharmaceutical company with a market value of nearly hundreds of billions, Yunnan Baiyao’s every move is now under intense scrutiny in the wake of the “nest case” revelation.
Industry insiders speculate that “due to the investigation of multiple Yunnan Baiyao executives who resigned, combined with the sudden departure of Chen Fashu and his son, they may also be implicated in the investigated case.”
Last year, it was still the top toothpaste brand in China
As is well known, Yunnan Baiyao, a century-old pharmaceutical company, entered the daily chemical field in 2005 by focusing on toothpaste and quickly gained a significant market share, becoming a leading brand in the domestic toothpaste industry. At that time, most brands in the market were competing in traditional toothpaste functions such as cavity protection and teeth whitening. Yunnan Baiyao toothpaste, on the other hand, positioned itself precisely as a high-end functional toothpaste and incorporated Yunnan Baiyao’s active ingredients into oral care, instantly capturing the domestic toothpaste market.
It is worth mentioning that in recent years, Yunnan Baiyao has consistently been the top brand in terms of market share in the domestic toothpaste market. According to data released by the China Oral Care Products Industry Association, the top five brands in terms of online retail sales in the toothpaste industry from January to December 2023 were Yunnan Baiyao, Colgate (formerly Darlie), Crest, Colgate, and Sensodyne, with their respective online retail sales accounting for 10.9%, 7.6%, 6.0%, 5.4%, and 4.9%. The combined online retail sales of these five brands accounted for 34.8%.
According to Yunnan Baiyao’s 2023 annual financial report, the company achieved a total operating revenue of 39.111 billion yuan, a year-on-year growth of 36.41%. The main business income of the Health Products Division, which includes toothpaste, maintained a growth trend, reaching 6.422 billion yuan in operating revenue, a year-on-year increase of 6.5%. In the field of oral care, Yunnan Baiyao toothpaste held a domestic market share of 24.60%, maintaining its leading position in the market. In addition, in the hair care field, Yunnan Baiyao’s subsidiary brand Yangyuanqing achieved breakthrough growth throughout the year, with sales revenue surpassing 300 million yuan, a year-on-year increase of 36%.
The recent first-quarter financial report released by Yunnan Baiyao also shows steady growth in the company’s performance. The operating revenue was 10.774 billion yuan, a year-on-year increase of 2.49%, and the net profit was 1.702 billion yuan, a year-on-year increase of 12.12%.
It is worth noting that the rise of Yunnan Baiyao in the toothpaste industry has also prompted many other companies to follow suit, and in recent years, numerous pharmaceutical companies have entered the market. For example, in 2023, Guangzhou Pharmaceutical Group Co., Ltd. announced its entry into the toothpaste market. Its listed company, Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd. (Baiyunshan), and toothpaste manufacturer Meichen Group jointly established Guangzhou Baiyun Toothpaste Company to create “Baiyun Toothpaste” and enter the billion-dollar toothpaste market.
However, with the entry of many new players, the competition in the toothpaste industry has become increasingly fierce. According to data from Qichacha, as of April 26, 2024, there were a total of 4,715 toothpaste-related companies nationwide, highlighting the intense competition in the toothpaste market. The impact of frequent executive changes at Yunnan Baiyao on its position as the leader in the toothpaste industry remains to be seen.
