Dong-E-E-Jiao Targets Men's Market via M&A; High Dividend Coupled with Double-Digit Growth Target

Overview

This report is based on Morgan Stanley's field visit to Dong-E-E-Jiao's (000423.SS) Inner Mongolia base, analyzing the strategic progress of the company's recent business diversification through M&A. As the traditional ejiao category matures, Dong-E-E-Jiao is actively seeking growth expansion via acquisitions, with latest moves including the acquisition of Inner Mongolia Alashan Cistanche Company and two deer antler extract companies in Jilin. These acquisitions aim to supplement the company's men's health product line beyond the women's market. The report maintains an 'Overweight' rating on Dong-E-E-Jiao, believing its high dividend policy provides a safety cushion, while the new growth curve from M&A is expected to alleviate market concerns over growth rates; the company is projected to continue achieving double-digit growth in revenue and profit in 2026.

Core views

Core View 1: M&A strategy focuses on the men's market to complete the product matrix. As the ejiao category enters a mature phase, Dong-E-E-Jiao is seeking new growth engines through M&A. At end-2025, the company acquired Inner Mongolia Alashan Cistanche Company for RMB88 million; in 2026, it successively acquired Dongfeng Maji (RMB35 million) and Shuzhong Jilin (approx. RMB200 million) in Jilin Province, both specializing in deer antler extracts. The report notes that these targets share common characteristics: providing products or ingredients targeting the men's market (e.g., cistanche, known as 'desert ginseng,' used for enhancing immunity and improving male fertility; deer antler extract also primarily targets men's health). This strategy effectively complements Dong-E-E-Jiao's traditional advantage in the women's segment, forming a complementary business structure of 'ejiao for women, cistanche/deer antler for men.' Core View 2: New business has huge potential but starts from a small base. Alashan Cistanche Company has developed a product line centered on extracts, including liquor, puree, candy, herbal tablets, and snacks, with liquor being the best-selling product. Alashan sales are expected to reach RMB100 million in 2026, with liquor contributing RMB70 million. Compared to Dong-E-E-Jiao's total revenue of RMB6.7 billion in 2025, this segment currently accounts for a small proportion, but Alashan has set a target of RMB1.5 billion in sales by 2030, demonstrating high growth ambition. Core View 3: Core business remains stable while emerging segments grow rapidly. Based on sell-out data, Dong-E-E-Jiao's traditional ejiao block segment is flat YoY YTD, with channel inventory remaining high; syrup-type products grew nearly 10% YoY. In contrast, consumer health and men's series products are growing much faster. Based on this, Dong-E-E-Jiao continues to target double-digit growth in revenue and earnings for 2026. Core View 4: High dividends provide defensive attributes; M&A narrative boosts growth expectations. Dong-E-E-Jiao maintains a near-100% dividend payout ratio, which is highly attractive to funds seeking a margin of safety. Meanwhile, the diversification story driven by M&A is expected to address investor concerns about the company's long-term growth drivers, supporting valuation recovery.

Analysis framework

The institutional analysis primarily follows an 'event-driven + fundamental verification' logic: 1. **Field visit verifies strategy implementation**: Through the Inner Mongolia site visit, confirmed the integration status of Alashan Cistanche Company and market performance of new product lines (e.g., cistanche liquor), verifying that the M&A is not merely financial investment but a substantive business extension. 2. **Segment complementarity analysis**: Compared newly acquired assets (men's health) with original core assets (women's ejiao), demonstrating expanded market coverage across gender dimensions and reduced single-category dependency risk. 3. **Volume/price and channel tracking**: Tracked sell-out data for ejiao blocks (flat), syrups (+10%), and emerging men's series (high growth) to deconstruct overall growth drivers and assess feasibility of double-digit growth targets. 4. **Valuation combined with margin of safety**: Derived target price using DCF valuation model while emphasizing high dividend yield as downside protection, constructing a dual 'growth + value' investment thesis.

Methodology notes

• Valuation MethodDCF Model

  Valuation using Discounted Cash Flow method, assuming cost of equity of 8.0%, terminal growth rate of 5%, requiring 20 years to reach steady state.

  This is a classic method for valuing companies with long-term stable cash flows. The report estimates intrinsic stock value by forecasting future free cash flows and discounting them to present value. Assumptions here reflect the institution's view of the company's long-term steady growth (5% terminal growth rate) and moderate risk premium (8% cost of equity).

• Competition & Strategy FrameworkMoat / competitive advantage

  Broadening brand moat through acquisition of complementary assets (men's health products), transitioning from a single women's tonic brand to an all-demographic health brand.

  The report focuses on how the company enhances competitive advantage by expanding its product line. Traditional ejiao is limited by gender-specific audience; by introducing men's health products, the company attempts to break through the ceiling and establish a broader user base and brand loyalty.

• Industry/Sector Analysis FrameworkProduct life cycle

  Identifying that the ejiao category has entered maturity with slowing growth, necessitating search for a second growth curve.

  Industry consensus suggests that when core products enter maturity, volume growth typically stalls. The report uses this logic to explain why the company is eager to enter new segments (men's health) via M&A to offset cyclical slowdowns in its main business.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Dong-E-E-Jiao (000423.SS)

  Beneficiary: Entering men's health track via M&A to achieve category complementarity, maintaining high dividends, possessing both growth and defensive attributes.

  Strengths

  Strong brand power, abundant cash flow, high dividend yield (near 100%), newly acquired assets form gender complementarity with core business.

  Weaknesses

  Traditional ejiao block growth stalled, channel inventory relatively high, new business has small base and integration uncertainty.

  Comparison

  Offers more diversified growth story vs. pure ejiao concepts; higher margin of safety vs. high-growth but non-dividend-paying biotech firms.

  Risks

  Donkey hide supply constraints causing shortages; younger demographics shifting to lower-priced brands; higher regulatory thresholds squeezing small manufacturers while potentially increasing compliance costs.

Key data

• Alashan Cistanche Acquisition PriceRMB88 MillionAcquisition completed at end-2025
• Dongfeng Maji Acquisition PriceRMB35 MillionCompleted in 2026, focused on deer antler extract
• Shuzhong Jilin Acquisition PriceApprox. RMB200 MillionCompleted in 2026, focused on deer antler extract
• Alashan 2026 Sales ForecastRMB100 MillionLiquor contributing RMB70 million
• Alashan 2030 Sales TargetRMB1.5 BillionLong-term growth vision
• Dong-E-E-Jiao 2025 RevenueRMB6.7 BillionBenchmark for comparing new business scale
• Ejiao Block Sell-out YoYFlatYTD data, channel inventory remains high
• Syrup Sell-out YoYNearly 10%YTD data
• Dividend Payout RatioNear 100%Sustained high dividend policy
• 2026 Growth TargetDouble-DigitPursuing double-digit growth in both revenue and earnings
• Target PriceRMB76.00Based on DCF model, implying 53% upside

Impact & implications

The report believes Dong-E-E-Jiao's M&A strategy marks its transformation from a single ejiao producer to a comprehensive Chinese-style health consumer group. For investors, this means the company no longer relies solely on ejiao price hikes or marginal volume increases, but has clear sources of incremental growth (men's health series). The high dividend yield offers strong defensiveness in the current market environment, while growth expectations from M&A provide offensive upside. If the newly integrated cistanche and deer antler businesses successfully achieve sales targets, it will significantly lift the company's valuation multiple.

Risks

• Younger consumers with lower purchasing power opting for cheaper brands, leading to market share loss.
• Donkey hide supply constraints causing shortages, thereby hurting sales growth.
• New derivative products (e.g., men's series) failing to make significant contributions.
• Diversification into hospital and online channels progressing below expectations.

What to watch

• Whether Alashan Cistanche Company achieves RMB100 million sales target in 2026, especially performance of liquor products.
• Whether sustained growth in men's series and consumer health segments can offset stagnation in ejiao blocks.
• Changes in channel inventory levels, particularly destocking progress for ejiao blocks.
• Whether there are further M&A activities targeting men's health or related herbal medicine sectors.