In 2009, the "Godfather of Private Equity" Zhao Danyang spent $2.11 million to win the charity lunch with Warren Buffett, setting a historical record at the time.

During the lunch, Zhao presented Buffett with two gifts: a bottle of Kweichow Moutai and a box of Dong-E-E-Jiao. News of this immediately sparked a sharp rally in Kweichow Moutai's stock price, which broke through 150 yuan. Dong-E-E-Jiao also became one of the biggest winners, with its reputation as the "Moutai of Traditional Chinese Medicine" gaining widespread market recognition.

Looking back with hindsight, despite fifteen years having passed, neither company has disappointed the market. Moutai has become the market's "top dog," while Dong-E-E-Jiao, after weathering a major crisis, recently hit an all-time high in stock price, fully recovering from its lows.

Dong-E-E-Jiao's recovery was driven partly by favorable industry conditions and partly by its improving financial performance.

According to its 2023 financial report, the company achieved revenue of 4.715 billion yuan, up 16.66% year-over-year, and net profit attributable to shareholders of 1.151 billion yuan, a 47.55% increase.

Alongside its financial rebound, Dong-E-E-Jiao announced a "blockbuster" dividend plan, distributing 1.146 billion yuan in cash dividends—a payout ratio of 99.60%.

It reached an all-time high.

Behind this "all-out" dividend lies the confidence from its sustained performance recovery.

In Q1 2024, Dong-E-E-Jiao continued its growth trajectory, reporting revenue of 1.453 billion yuan (up 35.95% YoY) and net profit of 353 million yuan (up 53.43% YoY).

Bolstered by these results, Dong-E-E-Jiao's stock surged over 40% year-to-date, hitting record highs and shaking off the shadow of the "boiled donkey hide" scandal, with its market cap exceeding 45 billion yuan.

Currently, the traditional Chinese medicine sector is outperforming the broader market. As a health supplement and premium gift, Dong-E-E-Jiao has reaffirmed its value to investors.

Kan Jian Finance believes that through restructuring and reform, Dong-E-E-Jiao has completed its "course correction," paving the way for future growth.

The Collapse of a "Myth"

Dong-E-E-Jiao traces its roots to the Shandong Dong-E-E-Jiao Factory established in 1952. After restructuring in 1993, it became part of state-owned conglomerate China Resources.

The company has focused exclusively on donkey-hide gelatin (ejiao) R&D, production, and sales.

In 2006, under CEO Qin Yufeng's leadership, Dong-E-E-Jiao began gaining prominence. To expand the ejiao market, Qin promoted slogans like "The Three Treasures of Tonic: Ginseng, Deer Antler, and Ejiao" and "National Treasure Tonic: Dong-E-E-Jiao."

An industry anecdote recounts how Qin traced ejiao's historical value to the Ming Dynasty, calculating that its price should equate to 8,000–12,000 yuan/kg today—making anything below 6,000 yuan/kg "undervalued."

The company also heavily product-placed in the hit drama "Empresses in the Palace," which catapulted Dong-E-E-Jiao to fame.

This laid the groundwork for subsequent price hikes.

In January 2010, Dong-E-E-Jiao initiated its first 20% price increase, followed by 5% in May. After a CCTV expose on counterfeit ejiao led to industry consolidation, the company raised prices another 10% in October. By early 2011, it implemented a drastic 60% hike.

From 2010 to 2018, Dong-E-E-Jiao raised prices 15 times, with per-kilo prices soaring from 80 yuan to 5,900 yuan.

This strategy boosted net profits from 149 million yuan when Qin took over to 2.085 billion yuan in 2018.

However, reckless price increases backfired. The 2018 "boiled donkey hide" scandal—questioning ejiao's efficacy—sent the company into freefall. Its market leadership was overtaken by rival Fujian Ejiao, and Qin resigned in disgrace.

Management turmoil followed, marking two difficult years.

Fortunately, new leadership halted price hikes, prioritized inventory reduction and price stabilization, and implemented strategic corrections—putting Dong-E-E-Jiao back on a growth path.

Course Correction and Breakthrough

Previously, Dong-E-E-Jiao's growth relied entirely on price increases.

Post-2018, this strategy was abandoned. After 2–3 years of inventory clearance and price stabilization, performance gradually recovered.

Though 2023 revenue (4.715 billion yuan) and net profit (1.151 billion yuan) haven't matched 2018 peaks, consistent growth has reassured markets—evidenced by its stock reaching record highs.

Data from Menet shows China's retail pharmacy market for blood-nourishing TCM exceeded 12.2 billion yuan in 2022, with 2023 H1 sales up 26.34% to 6.6 billion yuan. As this market expands, Dong-E-E-Jiao's performance may soon revisit its highs.

One unresolved challenge remains: donkey shortages. According to a 2023 study in the Chinese Journal of Animal Science, China's donkey population plummeted 57.46% from 2011–2021 to just 1.967 million, due to disappearing agricultural uses and insufficient supply chains.

Dong-E-E-Jiao's financial reports acknowledge this risk: "As farming mechanization and urbanization reduce donkey herds, domestic supply continues declining."

This scarcity isn't new—the company began global donkey sourcing over a decade ago.

While domestic donkey numbers keep falling due to high rearing costs and slow growth cycles, international supplies have maintained relative balance in hide availability.

Now under stable China Resources management, Dong-E-E-Jiao has shifted from relying solely on price hikes and distributor stockpiling to focusing on retail pharmacy channels and actual sales—a sustainable model.

Kan Jian Finance concludes that while Dong-E-E-Jiao made past missteps, it has paid the price. With market expansion ahead, the company is well-positioned to reclaim its former glory.