Event: according to the company's mid-2022 report, 2022H1 achieved revenue of 1.889 billion yuan, down 9.10% from the same period last year; realized net profit of 368 million yuan, up 67.81% from the same period last year; and deducted 133 million yuan from non-home net profit, down 31.58% from the same period last year.
Under the epidemic, the company optimized its business line, resulting in a decline in revenue and a high net profit. The revenue of 22H1 company has declined, and the revenue of proprietary Chinese medicine / western patent medicine / biopharmaceutical has respectively achieved 14.59 million yuan, down 8.3%, 13.37% and 20.95% respectively over the same period last year. Among them, Shuxuetong injection, the leading product of prescription drugs, was affected by the epidemic situation and the adjustment of dealer structure, and its revenue was under pressure in the first half of the year; Western proprietary Medicine was mainly due to the transfer of equity in Jiuzhitang Pharmaceutical and its two subsidiaries in May 22; OTC products were mainly affected by the rising cost of raw materials. The gross profit margin of 22H1 was 56.4%, down 4.87pct from the same period last year. The high increase in net profit but the large decrease in non-net profit is mainly due to the transfer of 51% equity in Jiuzhitang Pharmaceutical to increase the net profit by 212 million yuan, which belongs to non-recurrent profit and loss items. The company carried out the reform of the integration of production and marketing in the first half of the year, optimized the business management system, and established integrated production and marketing units in Changsha, Mudanjiang and other places.
The cost side is affected by the rise of raw materials, and the control of sales expense rate has achieved remarkable results. The operating cost of 22H1 accounted for 43.60%, an increase of 4.87pct over the same period last year. It is mainly caused by the rise in the price of raw materials. The 22H1 sales expense rate, management expense rate and financial expense rate are 35.0%, 6.49%, 0.02%, respectively, compared with the same period last year-2.11pct/+0.55pct/-0.07pct. Through active management, the rate of sales expenses has been significantly reduced. The company's cost side and expense side are expected to continue to optimize and continue to open up profit margins.
Join hands with Yifeng empowering industrial chain to jointly develop retail channels. The company signed the "Equity transfer Framework Agreement" with Yifeng Pharmacy on April 23, transferring 51% of the shares of Jiuzhitang Pharmaceutical. As of June 30, Jiuzhitang Pharmaceutical has completed the registration procedures for industrial and commercial change of equity transfer. We believe that the profit margins of pharmaceutical chains under the leadership of Yifeng Pharmacy will improve in the second half of the year, while OTC will benefit from the offline channels of Yifeng Pharmacy.
Investment suggestion: Jiuzhitang is a century-old Chinese time-honored brand with steady business development and rich echelon of products. The company integrates its business to improve the utilization rate of resources and join hands with Yifeng Pharmacy to broaden offline channels. We expect operating income of 3.506 billion yuan, 3.471 billion yuan and 3.829 billion yuan respectively, net profit of 518 million yuan, 671 million yuan and 755 million yuan respectively, EPS of 0.60 yuan, 0.77 yuan and 0.87 yuan respectively, corresponding to August 31 closing price of 8.82 yuan and PE of 15x, 11x and 10x respectively, maintaining the "buy" rating.
Risk tips: industry policy change risk, epidemic rebound risk, raw material supply shortage and price fluctuation risk, R & D risk.