Tracking of recent events: 1) on March 31, World Health Organization (WHO) released a report on the World Health Organization expert Evaluation meeting on the treatment of COVID-19 with traditional Chinese Medicine, which pointed out that traditional Chinese medicine can effectively treat COVID-19, reduce the conversion of mild and common cases to severe cases, shorten the virus clearance time, and improve the clinical prognosis of mild and common patients. The report also encourages member states to consider the integrated medical model (integrated traditional Chinese and western medicine model) developed and applied in China, to effectively manage the current epidemic and to prepare for possible future pandemics. 2) on March 15, 2022, the National Health Commission issued a notice on the issuance of COVID-19 's diagnosis and treatment Plan (trial Ninth Edition). It is mentioned that Angong Niuhuang pills are recommended for critically ill patients. 3) on March 1, 2022, 2021 ingenuity brand evaluation results were released. "Jiuzhitang Brand" and "Youbao Brand" two major brands stood out, both were selected, and were included in the ingenuity brand query system.
Angong Niuhuang Pill has maintained high revenue growth in recent years, and the scarcity of natural bezoar has pushed up product prices.
The company's Angong Niuhuang Pill sales revenue has increased rapidly in the past three years (2018-2020), with an annual growth rate of about 50% compared with the same period last year. Its raw material is natural bezoar + artificial musk, and natural bezoar mainly comes from scalper gallstones. Due to the gradual shift from agricultural production to mechanized production, yellow cattle are less likely to have gallstones due to lack of intensive labor, so the market is very scarce. According to statistics from the big data Center of Tiandi Yuntu traditional Chinese Medicine Industry, taking 3G Angong Niuhuang pills (natural bezoar + artificial musk) as an example, the production cost on the market rose from 133.877 yuan in January 2021 to 163.896 yuan in December 2021, an increase of 26.9 percent over the same period last year. The cost side led to the rise of retail prices. At the beginning of 2022, Jiuzhitang formally issued a price adjustment notice to customers, announcing an increase in the supply price or suggested retail price of 21 proprietary Chinese medicine products, including Angong Niuhuang Pill, Liuwei Dihuang Pill, Xiaoyao Pill, etc., ranging from 6% to 30%. Among them, the price increase of Angong Niuhuang Pill was between 12% and 25%. Liuwei Dihuang pills, which accounts for the largest share of revenue from OTC products, announced a 10 per cent price increase.
Culture + brand marketing two-pronged approach, actively create gold products, improve the product echelon. In 2020, the company has more than 100 million products: Liuwei Dihuang Pill, Angong Niuhuang Pill, Ejiao, Donkey Glue Buxue granule, Zuguang Powder, Shuxuetong injection. Among them, Liuwei Dihuang Pill is a traditional leading product of Jiuzhitang, which has maintained steady growth in recent years; Angong Niuhuang Pill sales revenue in the past three years (2018-2020) has an average annual compound growth rate of about 50%; Lujiao Buxue granule is the exclusive product of Jiuzhitang, ranking in the forefront of the national retail market of blood-tonifying products; Zukuangsan is a skin surgery drug, which is well-known in the south. Shuxuetong injection is a proprietary Chinese medicine for the treatment of cerebrovascular diseases. it has been awarded the "Brand list of Clinical value of proprietary Chinese Medicine" organized by the China Association of traditional Chinese Medicine. In terms of sales model, to ensure that traditional medicine channels while vigorously developers super channels and actively explore e-commerce and other modern sales models; cultural marketing, through traditional Chinese medicine lecture hall, Wechat official account to continuously update "healthy China" science series and other offline online activities, sink to the consumer side, enhance brand trust and customer stickiness In terms of products, we cultivate and promote strategic new products on the premise of ensuring the continuous growth of large products, and the company has a rich product line, covering many fields such as internal medicine, surgery, dermatology, gynaecology, orthopaedics and so on. in similar products have a good brand advantage and product reputation. We believe that, in addition to donkey glue Buxue granules, the market share of other products has greater room for improvement. The 14th five-year Plan clearly defines the revitalization of traditional Chinese medicine. Under the social background of an aging population and increased health awareness of young people, the overall plate of OTC is expected to usher in a higher growth rate in the future.
Under the influence of the policy, Shuxuetong injection stabilized and rebounded, and "de-agency + efficacy research" further broadened the profit space. In 2015, YouBo Pharmaceutical Co., Ltd. was merged and reorganized into Jiuzhitang. Its main product Shuxuetong injection was under pressure in 2018 under the influence of medical insurance control fees and auxiliary drug use, and its sales revenue stabilized and rebounded in 2020. The company actively responds to policy changes, on the one hand, through "de-agency" to improve profit margins, on the other hand, to conduct efficacy research, strive for expert consensus or enter the base drug to open the market.
The number of offline chain stores is growing steadily, and online Internet hospitals are building a traditional Chinese medicine ecosystem. As of the third quarter of 2021, there are 514 chain drugstores across the country, which are expected to maintain an annual growth rate of 10%. About 20% of the traditional Chinese medicine in the store is under the Jiuzhitang brand. Unlike other commercial chain drugstores, Jiuzhitang has a low profit margin mainly based on brand service, and is expected to improve its efficiency in fine management in the future. The online Jiuzhitang Internet Hospital was officially put into operation in Hunan in October 2020, providing users with closed-loop diagnosis and treatment services of "medicine, medicine, health, health and insurance". Users can not only consult online, but also enjoy medical and health services including health self-test, health guidance and so on. By the end of 2020, more than 200 TCM doctors were stationed on the platform, with more than 7000 registered users.
Investment suggestion: Jiuzhitang is a century-old Chinese time-honored brand with steady business development and rich product echelon. The company formulates targeted development strategies for various business sectors with the goal of forming three strategic plates: "traditional OTC traditional Chinese medicine + modern traditional Chinese medicine prescription medicine + innovative medicine". Seize the company's main cultural advantages to empower gold products, bear the policy pressure and actively carry out marketing reform and efficacy research. In 2021, we officially began to establish the Great Health field and enter the Great Health New Blue Sea. at present, we have launched related products in cosmetics, medicine and food homology, giving full play to Jiuzhitang's advantages in brand, research and development, production quality management, and so on. Jiuzhitang brand to promote the expansion of the brand from medicine to health brand. While ensuring the contribution of traditional medicines to revenue, innovative drugs and stem cell research will be carried out to lay a growth foundation for medium-and long-term performance. We estimate that the company's operating income from 2021 to 2023 will be 4.086 billion yuan, 4.819 billion yuan and 5.567 billion yuan respectively, the net profit will be 332 million yuan, 478 million yuan and 610 million yuan respectively, the EPS will be 0.38 yuan, 0.55 yuan and 0.70 yuan respectively, and the corresponding PE will be 25x, 17x and 14x respectively. We give Jiuzhitang 2022 PE valuation range of 24-26X, corresponding to the target price range of 13.20-14.30 yuan, to maintain the "buy".
Rating.
Risk tips: epidemic rebound risk, industry policy change risk, industry competition intensification, raw material supply shortage and price fluctuation risk, R & D risk.