A 30-year old pharmaceutical company with new leaders and new vitality Huashen Technology was founded in 1988 and has gone through more than 30 years of growth. Originally, the company's main business was biopharmaceuticals and construction steel structures. The new shareholders followed market trends and adjusted to a health industry group with green innovative biomedicine and modern traditional Chinese medicine (innovative traditional Chinese medicine, traditional Chinese medicine and health products with national characteristics).
Among them, products such as 37 Tonoshu capsules, Nabuchi Shu Oral Liquid, Vitalisu Oral Liquid, Smokeless Seabream, and Blue Light Mineral Water are the company's core products.
In 2020, the actual controllers of the company were changed to Huang Mingliang and Ouyang Ping and his wife, which gained new vitality.
High-growth equity incentives were launched in 2021, requiring the target values of the company's net profit growth rate from 2021 to 2023 to 80%, 130%, and 180% of 2020 (38 million yuan), respectively. The company successfully achieved its goals in 2021. Although incentives were not completed in 2022 due to the impact of the pandemic, the company still wanted to stimulate employee confidence through equity incentives, so the 2022 and 2023 incentive targets were adjusted. In the adjusted performance assessment, the net profit growth rate and the operating income growth rate each accounted for 50%. The new equity incentive target is closer to the actual situation of the company.
37 Tongshu has the potential to enter basic medicine, and the promotion of echelon product development has brought about new growth. The company's own core traditional Chinese medicine product, 37 Tongshu capsule, is the country's original second-class traditional Chinese medicine new medicine. It is mainly used for cardiovascular and cerebrovascular embolic diseases, treating stroke, malaise in the mouth and tongue, slurred speech, and partial body numbness. The drug has been on the market for nearly 20 years. It is highly safe in clinical application. It is a purer 37 preparation with more accurate targets and better curative effects, bringing more benefits from drug use to patients.
The 2021 basic drug catalogue management regulations were updated, and the new version of the basic drug catalogue emphasizes clinical value. The 2021 version of the basic drug management regulations was updated. The catalogue adjustments were based on drug clinical practice, changes in drug standards, new drug marketing situations, and implementation of dynamic adjustments. However, as a major type of traditional Chinese medicine for cardiovascular and cerebrovascular diseases, 37itongshu capsules are highly safe for clinical application, have a good market base, meet the conditions for the adjustment of the basic drug catalogue, and are expected to enter basic medicine.
Furthermore, the main product layout of the company's echelon is complete. Nabuchi Shu Oral Liquid was identified as a protected variety of traditional Chinese medicine in 1994, and has become a major variety of proprietary Chinese medicine and a classic medicine used to treat rhinitis and sinusitis in the field of otolaryngology treatment. A number of products, such as Yiqing granules and phenobromalone capsules, were selected in the “National Essential Drug Catalogue”. In addition, the company has actively carried out research and development of a number of classic prescription drugs, actively expanded the company's main product series, and provided impetus for subsequent business development.
Gradually divest the steel structure business and focus on the big health industry
The company's steel structure business is a business that always existed in the early days of listing, but the company's steel structure business is characterized by strong cyclicity and low gross margin. Before 2020, the revenue of the company's steel structure business declined, and gross margin was also negative. Although there was a sharp increase in business influenced by the industry in 2021, there was another sharp decline in 2022. Stability was poor, and there was no synergy with the company's main pharmaceutical sector. As a result, the company is considering divesting its steel structure business.
The big health industry is a new industry added by the company in recent years. The health drink industry and the Hainan industry are going two steps ahead, and the biopharmaceutical industry is being laid out in a forward-looking manner. The company acquired Blue Light Mineral Water in 2022. Blue Light mineral water is rooted in Sichuan, focuses on the household health drinking water market, and is a leading enterprise in the bottled water industry in Sichuan.
The Hainan regional business covers pharmaceutical research and development and the export of pharmaceutical registered APIs, high-end life care, specialty food, functional food, cosmetic raw material import and distribution, and the life care center industry base.
Currently, the company has a forward-looking layout in the biopharmaceutical industry. The biopharmaceutical mainly promotes the biopharmaceutical ricatin, which is the world's first monoclonal antibody immune-targeted drug for primary hepatocellular liver cancer. In terms of synthetic biology, it invests in Shanghai Ling Kai and its subsidiary Shandong Lingkai Pharmaceutical to lay out industrial fields such as specialty APIs, synthetic biology and green chemical intermediates to establish a sustainable segmented industry system and new profit growth points.
Investment advice
We expect the company's revenue from 2023 to 2025 was 999/99/1.23 billion yuan respectively, up 13.6%/-0.1%/23.7%, respectively, and the net profit of the mother was 0.8/1.1/14 billion yuan respectively, up 102.2%/28.4%/34.5% year-on-year, respectively. The corresponding valuation is 35X/27X/20X. First coverage, giving an “increase in holdings” investment rating.
Risk warning
Product recovery fell short of expectations; divestment of steel structure business fell short of expectations; DaHealth's integration fell short of expectations.