Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first two editions in the series can be found here and here. Please give us your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Golden Throat Holdings

Data as of 16 January 2023

History of Golden Throat Holdings and current management/major shareholders

Current HQ: Guangxi Zhuang, China
IPO date: July 2015, on Hong Kong Stock Exchange
Golden Throat Holdings’ history dates back to 1956 when Liuzhou No.2 Sweet Factory (柳州市糖果二廠), the predecessor of Golden Throat Company (also known as Guangxi Golden Throat), was established. Golden Throat Company today manufactures and sells lozenges and other pharmaceutical and food products.
Golden Throat Holdings’ flagship product is Golden Throat Lozenges (OTC), which was launched in 1994. Wang Yao Fa contributed to the creation of the formula for the Golden Throat Lozenges (OTC) product and his portrait was historically used by Golden Throat Holdings on the product packaging; the portrait was changed to Jiang Peizhen in 2015.
Golden Throat Company (the main operating entity in China of Golden Throat Holdings) was established in Liuzhou, Guangxi Zhuang, China, on 18 September 1998 by Jiang Peizhen as the original controlling shareholder. She has been involved with Golden Throat Holdings for over 60 years, since 1956.
Jiang and her son, Zeng Yong, control 69.79% of Golden Throat’s shares (the 69.79% equates to 516.0137 million shares) as of 30 June 2022. At the 11 January 2023 share price of HK$1.98, their stake equates to HK$1.02 billion.
Jiang, 76, is currently chairman and non-executive director of Golden Throat Holdings, while Zeng, 48, is an executive director and vice chairman of the board. Zeng has been involved with Golden Throat Holdings since 1995. Both Jiang and Zeng have been in their respective roles since February 2015.

Golden Throat Holdings’ business

Revenue in 2021 was RMB 820.5 million, of which 99.6% was from Mainland China.
The company reports its revenue by three product categories, which include Golden Throat Lozenges (OTC), Golden Throat Lozenge Series Products, and other products.
Golden Throat Lozenge (OTC): A type of lozenge mainly designed to relieve symptoms of sore and dry throat and hoarse voice caused by acute pharyngitis. Golden Throat Lozenges (OTC) was approved as over-the-counter medicine by the National Medical Products Administration (NMPA), China’s version of the FDA in the USA. As such, Golden Throat Lozenges (OTC) can be purchased by the public in pharmacies without requiring the prescription of a qualified medical professional. As of 31 December 2021, Golden Throat Lozenges (OTC) were exported to the United States, Canada, Russia, the European Union, Australia, Southeast Asia, Middle East, Mexico and Africa, and Mongolia, a newly explored export country in 2019. For the year ended 31 December 2021, Golden Throat Lozenges (OTC) accounted for 90.1% of Golden Throat Holdings’ total revenue.
Golden Throat Lozenge Series Products: Includes seven products comprising of Dule Lozenges (都樂含片), sugar-free Dule Lozenges, and five other sugar-free flavours of this series, namely orange (香橙), fructus momordicae (羅漢果), chrysanthemum (桑菊), American ginseng (西洋參) and hawthorn (山楂). A major difference between Golden Throat Lozenges (OTC) and Golden Throat Lozenge Series Products is that the former is approved as over-the-counter medicine, whereas the latter is approved as food products. The sugar-free series of Golden Throat Lozenge Series Products was launched in 2013, which supplements the company’s original sales channel and provides consumers with more diversified choices. As of 31 December 2021, Golden Throat Lozenge Series Products were exported to 17 countries and regions, and accounted for 8.7% of Golden Throat Holdings’ total revenue in 2021.
Other products: Accounted for approximately 1.2% of Golden Throat Holdings’ total revenue in 2021. Includes: (1) Yinxingye Tablet ( 銀杏葉片), which is designed to facilitate blood circulation, remove blood stasis and dredge energy channels and was approved as a prescription medicine by the NMPA; (2) a new product, Golden Throat Intestinal Series (金嗓子腸寶), which is an exclusive nutrition for probiotics, also known as prebiotics; and (3) Golden Throat Compound Probiotic Lozenges, which was launched in June 2022 and was developed by Golden Throat Holdings and the scientific research team of “Food Microbial Function Development” of Beijing Agricultural College. Golden Throat Compound Probiotic Lozenges addresses the lack of self-developed probiotics in China. Golden Throat Holdings has developed six kinds of proprietary probiotic bacteria in three new flavors and the company is committed to using “Chinese bacteria” to improve the physique of Chinese citizens. Golden Throat Compound Probiotics adopts the internationally leading three-layer embedding technology, 360-degree thermal radiation freeze drying technology, and automatic ingredient fermentation and cultivation system.
Golden Throat Holdings has established an extensive and structured sales and distribution network throughout China for its (i) over-the-counter medicines, (ii) food products, and (iii) prescription medicines. As of 31 December 2021 and 30 June 2022, substantially all of the company’s revenue was generated from sales to distributors. In 2021, there was only one customer that accounted for more than 10% of Golden Throat Holdings’ revenue (11.7%); there was no such customer in 2020.
Golden Throat Holdings has a well-established brand in China:
- In October 2021, in the 2021 ranking of China nonprescription medicines enterprises and product brands, Golden Throat Lozenges (OTC) was recognised as No. 1 amongst Chinese traditional medicines (Throat) by the China Nonprescription Medicines Association.
- Golden Throat Holdings was ranked 43rd amongst the nonprescription manufacturing enterprises in the 2021 ranking of China non-prescription medicines enterprises and product brands.
- Golden Throat Holdings was listed in the Top 500 Chinese Brands at the 14th China Brand Festival in August 2020.
- In August 2020, Golden Throat Holdings claimed the title of “2019 China Traditional Medicines Pharmaceutical Industry Top 100 Enterprise” at the China Pharmaceutical Industry Top 100 Annual Assembly.
- In 2019, Golden Throat was awarded the Best Brand Value Award at the China Financial Market Awards 2019, and won the Huapu Award at the 13th China Brand Festival in August.
- In 2017, the Golden Throat (金嗓子) brand was selected as a world famous brand by the China America Branding Strategy Forum and also ranked amongst the listed companies on the Forbes China Up-and-Comers List.

Golden Throat Holdings’ market and future expansion

According to a 2015 Euromonitor Report, retail sales value of lozenges in China increased 10.4% per year from RMB 2.09 billion in 2009 to RMB 3.42 billion in 2014, and was expected to increase to RMB 5.46 billion in 2019, at a CAGR of 9.7%. Lozenges accounted for 72% of the total throat remedies market in China in 2014; the throat remedies market primarily includes over-the-counter medicines and medicated confectionery (which are food).
In 2021, plants and office buildings of a new medicine production and research and development base for Golden Throat Holdings, located at Luowei Industrial Concentration Area, Liuzhou, Guangxi Zhuang Autonomous Region, as well as the commissioning of product lines and trial production were completed. Golden Throat Holdings completed the overall relocation in the second half of 2021. The new production base covers a usable area of about 60,000 square metres, including research and development centres, production plants, warehouses and administrative office buildings. “The fully automated production line in the production plant will improve the efficiency of the production process. A brand-new modern production enterprise will be formed with the new production and research and development base, new factories, new workflow and new production lines, which will completely upgrade the management platform and manufacturing platform of the factories, comprehensively improving the manufacturing quality and technology content of the products, enhancing the comprehensive competitiveness of the Company, and will lay a solid foundation for expanding and strengthening the Company.” The new production base increased Golden Throat’s production capacity for its main products by 57% to 198.5 million boxes of Golden Throat Lozenges. See video of the new production base: https://news.gxtv.cn/article/detail_567c4b49e6924346917643b221fe9555.html
Also in 2021, Golden Throat Holdings selected a 48 mu (~32,000 square metres) piece of land in the south of the new drug production and R&D base as the site for the second phase of the new Golden Throat Base, which is expected to have a usable area of approximately 50,000 square metres after completion. The second phase will house a food production plant and a food research and development centre. After completion, a high-tech R&D team, smart manufacturing and smart sales will be introduced to develop more comprehensive health products. The second phase of the Golden Throat new base will form the core of Golden Throat Doctor Workstation, the Golden Throat Professor Workstation, the Golden Throat Research Institute, the Golden Throat Gastrointestinal Research Institute, and the Golden Throat Heart and Brain Research Institute. It will also facilitate the development of new products such as genetic medicines, traditional Chinese medicine prescriptions, specialty medical devices, and specialty health foods. As of 30 June 2022, the second phase of the Golden Throat new base is in the initial stage of construction.
The Golden Throat WeChat Mini Program Mall was launched in early 2020. “We will continue to expand online sales channel in 2022, and we believe there would be breakthroughs in our online business in the future.”

Golden Throat’s sales volumes and pricing of products

There was a change in packaging-configuration in August 2013, so numbers for 2012 and 2013 are not like-for-like comparisons with numbers in later years.
Golden Throat Holdings has managed to raise the prices for its Golden Throat Lozenges (OTC) products over time, while keeping gross margin steady, keeping sales volume steady (although less steady then gross margin), and increasing revenue → signs of pricing power for Golden Throat Lozenges (OTC) product
Golden Throat Holdings has managed to raise the prices for its Golden Throat Lozenge Series Products over time, while increasing gross margin, increasing sales volume, and increasing revenue → signs of pricing power for Golden Throat Lozenge Series Products
Golden Throat Holdings’ sales volume was hurt in 2020 because of COVID, but the company still maintained or increased its product prices.
Golden Throat’s sales volume for Golden Throat Lozenge (OTC) products did not increase much over time because the volume was already near the company’s capacity – prior to the expansion mentioned in Point 3, Golden Throat’s annual production capacity was ~126 million boxes of the Golden Throat Lozenge (OTC) product.

Golden Throat financial performance

Annual numbers

Revenue has grown over time but had some ups and downs – same with net profit
Was always generating positive operating cash flow and free cash flow (with exception of 2017), although there’s no clear growth in cash flows.
Balance sheet was always in a strong net-cash position
No history of dilution (IPO happened in 2015 – immediately after IPO, there was around 726.36 million shares)
There was a dividend paid in every year since the company’s IPO, and it has increased over time; the dividend also looks fairly sustainable

Half-yearly numbers

Revenue growth in H1 2022 was affected by resurgence of COVID in China, and so was net-income
But cash flows have improved tremendously and balance sheet remains rock-solid
Worth noting that Golden Throat’s borrowings are all on fixed rates, so there’s no danger of rising interesting rates negatively affecting the company’s profit and/or cash flow

Management’s integrity and kindness

There are related party transactions (RPTs), but they are minimal. In 2021, Golden Throat Holdings incurred RMB 9.576 million in expenses to procure raw ingredients (such as liquid isomalt, isomalt AG, syrup, and probiotics) from a related entity, Changbao; in 2020, the amount was RMB 4.388 million. These amounts make up only a single-digit percentage of total net profit (and even much smaller percentage of total revenue) in their respective years.
The remuneration of Jiang Peizhen and Zeng Yong has largely increased at a faster rate than Golden Throat Holdings’ revenue, net income, and FCF over the years, especially after the company’s IPO. But their remuneration levels only make up a single-digit percentage of Golden Throat Holdings’ net income (see table below).
Golden Throat Holdings ended 2021 with 937 full-time employees, of which 100 are disabled persons. In August 2020, Golden Throat Holdings provided electric vehicles for employees commuting to work. The EVs are produced by Liuzhou SGMW (柳州上汽通用五菱) and Golden Throat Holdings ordered over 700 of them from SGMW. Management thinks the EVs “would not only solve the transportation problem of employees with long commuting distance, but also effectively stimulate domestic demand and help economic growth and recovery.”

Valuation

Valuation numbers based on 11 January 2023 share price of HK$1.98
Trailing PE (price-to-earnings) of 7.8, trailing PFCF (price-to-free cash flow) of 7.7
Net-cash per share of HK$0.88
Trailing PE net of cash of 5.0, trailing PFCF ratio net of cash of 4.9
Trailing dividend yield of a massive 9.1%
Management wanted to acquire the company in August 2021 at HK$2.80 per share together with Affirma (emerging market private equity firm owned and operated by former senior leadership team of Standard Chartered Private Equity; managed over US$ 3.5 billion in assets at the time of the announcement).I think this price could be seen as a floor on the value of Golden Throat holdings. Golden Throat’s trailing earnings per share and free cash flow per share was RMB 0.30 (~HK$ 0.36 ) and RMB 0.18 (~HK$ 0.21), respectively, based on the company’s financials for the first half of 2021, meaning the acquisition price valued the company at a trailing PE and trailing PFCF ratio of just 7.8 and 13.1. Net of cash, the PE and PFCF ratios would be 5.3 and 8.8

Final thoughts (as of 16 January 2023)

Very cheap valuation right now
Possibility of much higher revenue in 2023 (compared to 2022 and 2021) as China has reopened and Chinese citizens depend on the Golden Throat Lozenge (OTC) product to soothe their ailments from COVID or otherwise; 2022’s overall numbers may be lower than in 2021 as China was in lockdown mode for most of 2022 and only opened up late in the year.
Selling prices for Golden Throat Lozenge (OTC) products on Tmall are currently easily more than RMB 10 per box, and more commonly around RMB 12-14 per box (see screenshots below, taken on 16 Jan 2023 from Tmall app – sidenote: Tmall has better reputation than Taobao). The unit sale price to distributors reported by the company in H1 2022 was just RMB 7.0 per box; I think it’s reasonable to expect the unit sale price to distributors for 2023 – as well as overall volume – to be materially higher than 2022 and 2021, thereby boosting profit and cash flow margins for Golden Throat Holdings.
Golden Throat Holdings had expanded production capacity in 2021, and is building a new plant right now.
Golden Throat Holdings has also received strong government support for the production of its products. See the following English translations of a Mandarin article from the Guangxi government website:
- “On January 4, Wei Guanghui, a member of the party group and deputy director of the Food and Drug Administration of the Autonomous Region, led a team to Guangxi Liangmianzhen Yikang Pharmaceutical Co., Ltd. and Guangxi Golden Throat Pharmaceutical Co., Ltd. The production of Golden Throat Lozenges provides door-to-door service guidance, and pays close attention to ensuring the supply of drugs for the prevention and control of the new crown epidemic.”
- “Golden Throat Lozenges were selected into the “Catalogue of Drugs for New Coronary Virus Infection (First Edition)” issued by the Beijing Municipal Health and Health Commission. In order to meet the clinical needs of the general public, the company has expanded its capacity and production at full capacity, and the Food and Drug Administration of the Autonomous Region has followed up the whole process.”
- “The working time of Golden Throat Lozenges has been extended from the original 8 hours to 12 hours, and the daily production has increased from 7.37 million tablets to 9.21 million tablets, which strongly supports the anti-epidemic needs of the people across the country.”
For now, I see Golden Throat Holdings as a deep-value stock, but it could also change into a growth stock if its plans for new products such as genetic medicines, traditional Chinese medicine prescriptions, specialty medical devices, and specialty health foods succeed.
One risk to the company’s future business prospects is if its Golden Throat Lozenge (OTC) product price gets controlled by the government. According to the IPO prospectus, “there had been no fixed or maximum prices promulgated by any authorities in China on Golden Throat Lozenges (OTC).” There’s been no update on the matter that I could find in subsequent annual reports.

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Company Notes Series (#3): Golden Throat Holdings Group Company