Traditional Chinese medicine formula granules: at the end of the pilot project, the blue ocean market of formula particles will be rolled out in an all-round way, and the superimposed standard conversion will lead to a rise in volume and price, accelerating the improvement of permeability, and building a moat of the company with "technology + production capacity + market".
In 2021, the market size of traditional Chinese medicine formula granules is about 33.2 billion, accounting for only about 11% of the market share of prepared slices, and about 7% of the market share of proprietary Chinese medicine. The company is the leading enterprise in the formula granule industry, and the market share of formula granules business is the first.
The trial of traditional Chinese medicine formula granules officially ended on November 1, 2021 and began to implement the national standard, and the sales scope was expanded from second-level and above traditional Chinese medicine hospitals to medical institutions at all levels with TCM practice qualifications, promoting the substantial expansion of the market. The implementation of the new national standard forced the price increase, which helped to build a new price system; at the payment side, qualified traditional Chinese medicine formula particles were included in health insurance. Policy spring breeze accelerates the improvement of market penetration of traditional Chinese medicine formula granules.
The company's revenue of traditional Chinese medicine formula granule business reached 13.2 billion in 2021, with a five-year compound growth rate of 24.87%. It continues to deepen the moat in terms of technology, production capacity and market: (1) at the level of technical standards, subsidiary Jiangyin Tianjiang and Yifang Pharmaceutical belong to the pioneers of the industry. are the first domestic enterprises to obtain the pilot qualification of formula granules, in the current 196 national formula granule standards, the company drafted about 102 standards (2) at the level of production capacity, the company's current production capacity of formula granules is 15000 tons, which is much higher than that of other four national pilot enterprises. At the same time, the company has more than 700kinds of formula granules with abundant production capacity and prominent scale effect; (3) at the level of market network, the company's sales scope covers all parts of the country, and with the promotion of intelligent dispensing machines, the enterprise is able to improve the customer stickiness of terminal medical institutions. Based on the industry opportunities and the company's leading advantages, we believe that the compound growth rate of the company's formula granule business is expected to exceed 20% in recent years.
Proprietary Chinese medicine: "3-4-5" high-quality brand escort, anti-epidemic medicine Huashi Baidu granule starts the journey of innovation
The revenue of the company's proprietary Chinese medicine business was 3.489 billion yuan in 2021, with a compound growth rate of 10.02% in four years. The company now has 3 Chinese time-honored brands, 4 intangible cultural heritages and 5 Chinese well-known trademarks; the products cover osteoporosis, rhinitis, hepatitis, cardio-cerebrovascular and rheumatic diseases, and are driven by clinical drugs (accounting for 73.4% of revenue of proprietary Chinese medicines) and OTC (accounting for 26.6% of revenue of proprietary Chinese medicines). At present, it has ten base drug products and more than ten core products. In 2021, the innovative anti-epidemic medicine Huashi Baidu granule was approved to be listed on the market and included in the national medical insurance. it is one of the varieties examined and approved for the first time according to the requirements for Registration, Classification and Application of traditional Chinese Medicine (No. 68 of 2020) and 3.2 other compound preparations of traditional Chinese medicine from ancient classical prescriptions after the reform of registration classification of traditional Chinese medicine. We expect the company's proprietary Chinese medicine business to achieve steady growth of 15-20% in recent years.
Traditional Chinese medicine slices and medicinal material cultivation: the construction of traditional Chinese medicine resources system is perfect, and the synergy effect of upstream and downstream industry chain is gradually highlighted. "Longyin Brand Strategy" distributes a total of 28 enterprises licensed for the production of prepared slices in 19 provinces across the country. the scale of production capacity continues to expand (more than 80,000 tons), and the synergy effect of the whole industry chain of planting Chinese herbal medicines-prepared slices-formula granules / proprietary medicine is further highlighted. (1) the total investment of "Origin Integrated Business" is about 2.35 billion, integrating the integrated whole industry chain of medicinal materials, prepared slices and formula granules / proprietary medicines, and now the production and operation of the whole system, and radiating all regions of the country; (2) positioning high-quality medicinal materials, using the brand "Longyin-Chinese Medicinal Materials" to create high-quality medicinal materials and abandoning traditional low-margin varieties, the gross profit margin of prepared pieces of traditional Chinese medicine will gradually increase (up to 17.28%) in 2021. Based on the current development trend, we expect the compound growth rate of the company's traditional Chinese medicine slices and traditional Chinese medicine planting business to exceed 30% and 50% respectively in recent years.
Profit Forecast:
According to the growth of the company's business operations, we expect that the revenue in 2022-2024 will reach 22.566 billion, 28.494 billion and 34.723 billion respectively; at the same time, the company's EPS in 2022-2024 will be 0.44,0.54,0.65 respectively. As of June 13, 2022, the company's closing price will be HK $3.98, and its PE will be 7 times, 6 times and 5 times of 2022-2024, respectively, maintaining a "highly recommended" rating.
Risk hints: cancellation of addition of formula particles; risk of collection of formula particles and prepared slices; risk of cancellation of medical insurance qualification; risk of regional protection policy; price fluctuation of traditional Chinese medicine; risk aggravated by market competition Ping An Insurance, the second largest shareholder of Chinese traditional medicine, is the indirect controlling shareholder of founder Securities. There is a relationship between Chinese traditional medicine recommended in this report and our company. We have fulfilled our disclosure obligations and asked investors to make prudent investment decisions. and bear all the consequences of investment transactions accordingly.