The first half of 2021 results are in line with our expectations.
The company announced its results for the first half of 2021: revenue of 2.77 billion yuan, year-on-year + 23.5%; net profit of 320 million yuan, corresponding to earnings per share of 0.25 yuan, + 16.1%, in line with our expectations.
Trend of development
In the first half of 2021, the company's core products resumed growth. In the second quarter of 2021, the revenue was 1.41 billion yuan, + 30.4% / month-on-month + 4.2%, and the net profit was 140 million yuan, + 18.8% / month-on-month-15.5%. In the first half of 2021, the sales of Jinkui Shenqi pills, Xihuang pills, Niuhuang jiedu tablets and cold and heat-clearing tablets increased by 17.69%, 17.46%, 52.90% and 11.02%, respectively. At the same time, the company continues to increase the development of distribution market and terminal market for Ejiao series products, which leads to an increase in sales compared with the same period last year. And Liuwei Dihuang pill series due to the abundance of end products, sales decreased by 14.00% compared with the same period last year.
The operation of subsidiaries has improved. In the first half of 2021, the income of Tongrentang national medicine was 590 million yuan, + 13.9% compared with the same period last year, and the net profit was 220 million yuan, + 8.4% compared with the same period last year. In the first half of 2021, the number of outpatients of Tongrentang second traditional Chinese Medicine Hospital was about 130000, an increase of about 45% over the same period last year, and has gradually approached the pre-epidemic level.
Other: 1) in the first half of 2021, the gross profit margin is from-0.5% to 45.1%. 2) the net profit rate is from-0.7% to 11.4%. 3) the sales expense rate is 16.2%, + 0.5% year-on-year, and the management expense rate is 7.6%. Year-on-year-0.6%.
Profit forecast and valuation
We keep our earnings per share forecasts for 2021 and 2022 unchanged at 0.40 yuan and 0.44 yuan, corresponding to year-on-year increases of 10.5% and 9.5%, respectively. The current share price corresponds to 12.1 times 2021 / 2022 / 11.1 times earnings. We maintain an outperform industry rating and a target price of HK $7.10, corresponding to 15.1 times 2021 price-to-earnings ratio and 13.8 times 2022 price-to-earnings ratio, which is 24.6% upside from the current share price.
Risk
Depreciation pressure on two new production bases; the cost of donkey skin is rising.