Event: on August 14, Jiuzhitang Co., Ltd. (hereinafter referred to as "the company") released its financial report for the first half of 2021. In the first half of 2021, the company realized operating income of 2.078 billion yuan (+ 13.38%) and net profit of 220 million yuan (+ 11.38%). Realized non-return net profit of 194 million yuan (+ 1.42%), basic earnings per share of 0.26 yuan per share (+ 11.54%).

The company has a Chinese time-honored brand of traditional Chinese medicine, a rich echelon of products, various business plates targeted to create marketing strategies, rapid growth in performance. The company has traditional Chinese medicine "Jiuzhitang" brand products, modern traditional Chinese medicine "Youbo" brand products, biological preparation products "Siqikang" and medicine and food homologous products. By the end of 2020, the company has 339 national drug registration approvals, covering cardio-cerebrovascular, kidney-tonifying, blood-tonifying, women and children, facial features and other fields. Shuxuetong, Liuwei Dihuang pills and other six major single sales revenue are more than 100 million. Zuguang San and Lujiao Buxue granules and other varieties have a leading market share, and the echelon of products with an annual income of 10 million in the fields of gynaecology, kidney tonifying and cardio-cerebrovascular diseases are rich. In the first half of 2021, the company's revenue growth rate exceeded that of 2020 (11.81%). Since the performance rebounded in 2020, the company's business development has been sound and its financial position has been good in 2021.

The company formulates targeted development strategies for various business sectors to enable performance growth. 1) the prescription drug management sector actively adapts to the policy changes of medical insurance, fee control and drug use restrictions, maintains the sales stability of the leading product Shuxuetong injection, strives for stable profits and cash flow, and focuses on promoting products such as Tianma Uncaria (for the treatment of hypertension). Promote the company's prescription drug varieties into the base drug catalogue 2) since the implementation of the cultural marketing strategy, the OTC management plate has achieved a breakthrough in channel sinking, and will continue to expand and strengthen strategic varieties such as Ejiao, Angong Niuhuang Pill and Liuwei Dihuang Pill in the future. 3) the pharmaceutical business sector implements fine management, improves the service level of stores, serves the Jiuzhitang brand, and actively expands customers. The number of chain stores in the first half of 2021 is 31 more than that at the end of 2020, which is expected to bring double growth in scale and profit. 4) the medical and health service sector will strengthen the construction of Internet hospital system and seize the development opportunity of Internet diagnosis and treatment. 5) the health product management plate implements the "big health" strategy. At present, a number of cosmetics containing traditional Chinese medicine extract and homologous consumer products of medicine and food have been put on the market. In addition, the company has carried out strategic cooperation with JD Health and Nanshan holding Group to create new business growth points.

Actively carry out innovative drug research and development and traditional Chinese medicine re-evaluation to empower the company's medium-and long-term development. In 2021, the company steadily promoted innovative drug research and development, and YB209, a new anticoagulant, was approved to conduct phase Ⅰ clinical trials in the United States, which is a new generation of low bleeding tendency antithrombotic drugs; Volagidemab, an antibody drug against glucagon receptor of Kexin Meade, a participating company, has successfully completed phase 1 diabetes Ⅱ clinical trials in the United States, and is currently in clinical preparation for phase III, and there is no similar product on the market at home and abroad. In addition, the company also has stem cells and innovative cyclopeptide antibiotics and other projects under research. If the company's innovative drug products can be successfully commercialized in the future, it will effectively enhance the company's performance growth potential and market influence.

In addition, the company actively promotes the re-evaluation of listed products and dig deep into the value. The company completed five patent applications in the first half of the year, successfully published the study of Shuxuetong injection in preventing the recurrence of acute embolic stroke, and made important progress in the re-evaluation of products such as Tianma Gouteng granule and Siqikang injection. help to improve product recognition and brand image.

Capacity expansion helps the company's business development, and state-owned equity investment and equity incentives boost development confidence. At present, the company makes full use of its production capacity and actively carries out capacity construction. The first phase of the National Pharmaceutical Health Industrial Park project has completed the acceptance of the main project, which will help the company to improve production capacity and enrich product clusters. The company implements the employee stock ownership plan in 2020 to establish a mutually beneficial incentive and restraint mechanism. The stock ownership plan holds a total of 16 million shares, which helps to improve the enthusiasm of employees and the operational efficiency of the company.

In July this year, the company announced that Mr. Li Zhenguo, the actual controller of the company, transferred 47814483 shares of the company held by unlimited sale and circulation (accounting for 5.50% of the total share capital of the company) to the No. 1 Development Fund by agreement. After the completion of the transfer, the No. 1 Development Fund is the third largest shareholder of the company. This State-owned investment in Jiuzhitang will help to alleviate the equity pledge risk of the actual controller of the company and stabilize the ownership structure of the company. It shows confidence in the future development of the company.

Investment suggestion: recently, the traditional Chinese medicine industry has received strong support from a number of policies. Jiuzhitang is a century-old brand with steady business development, actively carrying out marketing reform, capacity expansion and equity incentives, steadily promoting new drug projects and empowering for medium-and long-term development. at present, the company's market capitalization is relatively undervalued, with the steady implementation of state-owned equity and innovative drug projects, the company's investment value gradually appears. It is estimated that the EPS of the company from 2021 to 2023 will be 0.35,0.46,0.58 yuan, corresponding to the PE of 25.99,19.99,15.66 times respectively, covering for the first time and giving the rating of "increasing holdings".

Risk hints: pharmaceutical industry policy adjustment risk, innovative drug research and development risk, COVID-19 epidemic risk, market risk.