Email This Print This Chairman's Message

* Extracted from Annual Report 2017

Dear Shareholders,

FINANCIAL PERFORMANCE

For the year ended 31 December 2017, the Group saw revenue increased 51% to RMB93.3 million and gross profit increased 143% to RMB52.0 million due to higher selling prices of drugs under the 'Two-Invoice System'. However, certain policies implemented by the China government affected the Group's operations. These included changing the traditional multi-level distribution chain to a flatter one which resulted in significantly higher selling and distribution expenses; as well as introducing consistency evaluation for generic drugs for injections which led to termination of some research and development ("R&D") projects. As a result, the Group recorded a net loss attributable to equity holders of RMB20.8 million.

OPERATIONAL HIGHLIGHTS

2017 was a challenging year as reforms in the national medical and health system affected production circulation in the pharmaceutical industry as well as the Group's products and production line. To cope with these as well as a decline in the antibiotics injection market, the Group focused on consistency evaluation studies of products, continued R&D and obtaining R&D approval for many upcoming inhalant products, as well as commenced blow-fill-seal ("BFS") production line for packing new inhalant products. The Group also improved sales system by reorganising its sales team, decentralising management of provinces, enhancing management concentration, conducting radiation control based on sales areas as well as boosting market development and service level of its headquarters. These not only contributed to the Group's stronger revenue growth in 2017 but also built a strong foundation for the future.

As part of its corporate social responsibility efforts, the Group became research cooperative partners with College of Life Sciences of Hainan Normal University to offer internships for students. In addition, the Group conducted activities at various government authorities and institutions including Hainan Technician Institute, Haikou College of Economics, Haikou University of Political Science and Law, Haikou Technology and Business University, Hainan Software Profession Institute and many more. From these collaborative efforts, the Group recruited more than 60 promising employees and trainees to bolster its capabilities and competitive edge for the next phase of growth.

Although the Group did not launch any new products in 2017, it started and completed R&D approval for six new products, and will continue to focus on R&D of its inhalant products. In 2018, the Group's new product Acetylcysteine Solution for Inhalation was approved by China Food and Drug Administration ("CFDA") and is expected to be launched in second half of 2018.

CERTIFICATION AND RECOGNITION

The Group was recognised on various fronts during the year. Its Gui Huang Qing Re granules won the Hainan High-tech Product certificate and was also listed on the Drug Catalogue of National Basic Medical Insurance, Work-related Injury Insurance and Maternity Insurance (2017 Version). For manufacturing quality and quality risk controls, the Group's workshops for freeze-dried powder injection, small volume injection (including non-terminal sterilisation) as well as other products underwent many national and provincial inspections and was certified Good Manufacturing Practices ("GMP") by CFDA. In addition, the Group passed the Hainan high-tech enterprise authentication and competitive enterprise authorisation of national intellectual property.

OUTLOOK

Many products under development are expected to be approved by the national pharmaceutical auditor Centre for Drug Evaluation ("CDE") in 2018, including Rocuronium Bromide Injection, Torsaemide for Injection, Fasudil Hydrochloride Injection and Acetylcysteine Solution for Inhalation. Once approved, these products will further widen the Group's product offering and are expected to contribute positively to the Group's growth.

Going forward, the Group will focus on launching new products while improving sales of current products. In addition, the Group will upgrade its various workshops to increase production capacity, reduce production cost and secure new businesses. The Group will also stay nimble and adapt accordingly to changes in the national medical and health policy to take advantage of potential businesses as well as exit from or scale down on unfavourable ones.

In June 2017, the Group was placed on the watch-list of the Singapore Exchange Securities Trading Limited ("SGX-ST") as the Group's share price was below the SGX-ST's minimum trading price criteria. The Group is exploring options and will capitalise on appropriate opportunities to meet the criteria and be removed from the watch-list.

ACKNOWLEDGEMENTS

I would like to take this opportunity to welcome Mr. Wang Qi to the Board who joined us on 1 March 2017. Last but not least, I would like to thank management, staff, business partners, investors and all other stakeholders for their continued support to the Group.

XU ZHI BIN

Executive Chairman