Winnermed weathered the 315 storm: How the Hubei tycoon is mending consumer trust

Robust Medical (300888.SZ, hereinafter referred to as "the company") has just gone through a storm.

In March, the company responded to the attention letter from the Shenzhen Stock Exchange. The incident was triggered by a CCTV program, involving the company's brand "Purcotton." Currently, the company is transitioning from a specialized medical enterprise to a consumer goods company, with its business structure and market valuation undergoing reconstruction.

The Test of the "Post-Golden Age"

CCTV's 315 Gala exposed that some manufacturers purchase unqualified products that should be destroyed by legitimate companies at prices ranging from

A single stone can stir up a thousand waves. On that day, the Shenzhen Stock Exchange required the company to conduct a self-examination and provide an explanation. The company also promptly formed a special team and reported the matter to the public security authorities. On March 20, the company publicly responded to the inquiry letter.

According to the announcement, the company has established comprehensive management systems for raw material procurement through self-examination and strictly implements them, ensuring effective operation of internal controls. Additionally, the company has launched the PureCotton Joy hygiene product anti-counterfeiting traceability code project, achieving one-to-one coding with non-replicable features. Consumers can scan the code to trace product information, factory production, raw materials, and relevant inspection reports.

Moreover, the company will immediately upgrade the handling level of defective materials of hygiene products, strengthen the control over defective materials, and truly cut off the chain of secondary illegal use of defective materials.

The sudden public crisis is a test for the company as it enters the "post-golden era."

In the 1990s, Li Jianquan, who worked for a foreign trade enterprise in his hometown of Hubei, moved south to Zhuhai. At that time, the south was experiencing a wave of market economy. In a field that was in great need of development, he founded a company and focused on the medical dressing sector. However, the medical field demands high technology, high barriers to entry, and high standards. In order to break into the market and claim a share, Li Jianquan led his team to "grind" on technology and eventually independently developed the cotton water-jet non-woven fabric process.

The advent of this technology laid the groundwork for the company's subsequent cross-sector expansion. As medical scenarios demand extremely high product quality, the technology was capable of being extended to the consumer market. In 2009, the brand "PurCotton" was launched, marking the company's transition from medical to household applications.

In 2020, the company迎来了自己的高光时刻。一方面，伴随新冠疫情爆发，医用口罩、防护服等产品销量激增，进而拉动公司业绩高速增长。另一方面，公司登陆创业板，市值一度超900亿元。

A strong wind rises, and everyone supports it. At that time, various institutions were optimistic about the company's prospects, focusing on the rapid growth of its medical consumables business. The company was even dubbed the "first stock of masks," as its medical mask products contributed significantly to its performance. However, later, the market environment changed drastically, and everything seemed to be set for a re-evaluation.

Valuation revaluation switching logic

If we extend the timeline, companies in the medical device sector have gone through two phases: the first was becoming "pigs on the wind" by entering the capital market; now, as the tide of dividends recedes, they are accelerating cross-border transformation in the new cycle.

As of now, the company has established three major brands—"Winner稳健医疗," "Purcotton全棉时代," and "PureH2B津梁生活"—covering both the medical and consumer sectors. Additionally, the company has ventured into the medical aesthetics market with products such as scar treatments, facial masks, acne patches, and saline cleansing solutions.

In the first three quarters of 2024, the company's consumer goods business revenue reached 3.36 billion yuan, a year-on-year increase of 13.7%, accounting for 55.4% of total revenue. The All Cotton Era has four core categories: soft towels, sanitary napkins, intimate clothing, and newborn products. Among them, the sales of cotton soft towels reached 1.01 billion yuan, a year-on-year increase of 31.3%. The reason for achieving this growth rate, as emphasized in a research report by Guojin Securities, is the All Cotton Era brand's ability to break through in consumers' minds.

Capturing consumers' minds is not an overnight achievement; instead, it requires brands to meticulously refine both product quality and marketing strategies. On the market, most cotton wipes still use synthetic fibers, while PurCotton insists on 100% pure cotton. Since consumers currently struggle to accurately identify material differences and are even less aware of the advantages of pure cotton, the company has chosen a challenging path.

This road is "tough but right," and time will provide the answer. However, the company is also making changes. In the past, P&G Full Cotton would emphasize the story of its brand in terms of medical genetics. But in February of this year, Phoenix Satellite TV and Li Jianquan delved into the brand's origins, starting with the exploration of a single cotton flower, aiming to revisit and uncover new connotations within the supply chain.

As of the third quarter of 2024, the membership scale of Purcotton has shown significant growth, with the total number of members exceeding 58 million, a year-on-year increase of 11.4%. Among them, registered members on the private domain platform surpassed 30 million, nearly 15 million from physical stores, and over 15 million from the official website and mini-programs. During the same period, the company operated a total of 477 offline stores, with 79 new stores opened.

For the capital market, cross-border activities are not just a simple second growth curve, but also a test and tempering of valuation re-evaluation. In the past, investment institutions placed more importance on the company's technological moat to determine value. Now, the valuation has shifted to consumer goods logic, with the essence being rebuilt on brand power.

The old business has resumed acquisitions.

Although Winner Medical is racing ahead in the consumer goods sector, its core and foundation remain rooted in professional medical products.

In the first three quarters of 2024, the company's medical consumables business revenue was 2.66 billion yuan, a year-on-year decrease of 11.5%, accounting for 43.7% of total revenue. Among them, there was a rebound in the third quarter, with revenue growing by 13.1%.

In fact, the post-pandemic era leaves medical device companies with more reflection. Cross-sector布局 is a breakthrough, but how to maintain the fundamentals is the foundation; only with a solid base can one strive for higher development. (Note: The term "布局" could be interpreted in different contexts. In this translation, I've kept it as "Cross-sector layout" to maintain the original meaning as closely as possible. However, depending on the exact context, it might also be translated as "cross-sector planning," "cross-sector strategy," or similar terms.) For a more natural English flow, we might adjust it slightly: "In fact, the post-pandemic era leaves medical device companies with more reflection. Cross-sector expansion is a breakthrough, but maintaining core competencies is fundamental; only with a solid base can one strive for higher development."

In this regard, the company has chosen to "expand" overseas. In September 2024, the company announced the acquisition of a 75.2% stake in Global Resources International for a consideration of $120 million. The target company is headquartered in the United States and its main products include surgical packs, drapes, sheets, and containers, with a revenue exceeding $150 million and a net profit of $8.9376 million in 2023. The U.S. market accounts for approximately 70%.

The company has its own considerations for choosing this time to make an acquisition. Previously, the company had expanded production of masks and protective clothing, which led to a significant focus on inventory reduction in 2023, and impairment provisions were made for防疫产品. As of the first half of 2024, the company's inventory balance was 960 million yuan, a decrease of 22 million yuan year-on-year, mainly due to accelerated clearance of infection protection products.

Before this round of overseas acquisitions, the company stated at the earnings briefing that the majority of inventory and legacy issues related to epidemic prevention products had been resolved. In fact, in 2022, the company acquired three enterprises,布局穿刺、乳胶制品、高端伤口敷料等品类. In response, the company publicly stated that it "has gained some successful experiences and also learned some lessons."

As of the third quarter of 2024, the company's goodwill amounted to 1.515 billion yuan, representing a year-on-year increase of 75.29% due to the acquisition of a U.S. target.