Main points of investment

Events: first, on August 15, the board of directors of Ziguang Guhan announced that the board of directors considered the "motion on the change of directors of the company". Mr. Li Yi, the chairman of the company, resigned as a director and chairman of the company due to job changes, recommended by the Ziguang Group, the largest shareholder. The board of directors nominated Mr. Qiao Zhicheng as a candidate for the sixth board of directors of the company, which is subject to consideration at the general meeting of shareholders of the company on August 30. On the same day, the company announced the civil judgment of first instance on the joint venture contract dispute between Tong Dexiang Pharmaceutical and Tong Dexiang Pharmaceuticals v. Ziguang Guhan Group Hengyang Pharmaceutical (hereinafter referred to as: Guhan Pharmaceutical). According to the judgment of the first instance, Ziguang Guhan needs to pay a total of 87.469 million yuan, and the company expects to reduce the company's current profit by about 28.36 million yuan to 39.18 million yuan. The company will appeal the case, and the verdict is uncertain. (remarks: [(2013) Hengzhong, France and the people's second word No. 3] the main contents of the judgment of first instance are as follows: 1. Ziguang Guhan and Guhan Pharmaceutical paid 64.4511 million yuan for the purchase price of fixed assets of Tong Dexiang Pharmaceutical and Tong Dexiang Pharmaceutical. 2. Ziguang Guhan delimited a piece of land of the same nature, the same area and the same lot in the existing land of Hengyang High-tech Development Zone and all the land of Tongdexiang Pharmaceutical (with an area of 56.73mu) for replacement; 3. Ziguang Guhan and Guhan Pharmaceuticals paid 8.141 million yuan and interest for breach of contract losses of Tongdexiang Pharmaceutical and TongDexiang Pharmaceutical; 4. Ziguang Guhan paid 375500 yuan for accepting the case. The main contents of the judgment of first instance are as follows: 1. Ziguang Guhan shall pay 14.5439 million yuan and interest to Tong Dexiang Medicine within 10 days after this judgment takes effect; 2. Tong Dexiang Medicine shall compensate Ziguang Guhan for the loss of 212500 yuan and interest within 10 days after this judgment takes effect; 3. Ziguang Guhan shall bear the case acceptance fee of 170000 yuan.)

Comments: first, as a resource-based enterprise with tonic traditional Chinese medicine secret variety Guhan health essence, Ziguang Guhan's introduction of star professional managers will help to transform resources into performance and enhance the value of resources. Second, the civil judgment of the first instance of the dispute between the company and Tongdexiang Pharmaceutical and the joint venture contract with Dexiang Pharmaceutical is disadvantageous to the company, but the company will appeal against the case, and the judgment of the first instance cannot take effect during the period of appeal, and the outcome of the case is uncertain. Take a step back, but what is the outcome of the verdict? the resolution of the contract dispute will enable the company to deal with the lossmaking giant Guhan Pharmaceuticals.

First, the introduction of star professional managers will enhance the value of resources

At the same time of the resignation of the former chairman, Mr. Qiao Zhicheng was recommended by Ziguang Group, the largest shareholder, and nominated by the board of directors as a candidate for the sixth board of directors of the company. Mr. Qiao Zhicheng worked in Yongjin Group from 1998 to 2003, the investment director of Zhuzhou Qianjin Pharmaceutical Co., Ltd in 2004, and the general manager of Zhuzhou Qianjin Pharmaceutical Co., Ltd from December 2004 to August 2010. he served as vice chairman of Zhuzhou Qianjin Pharmaceutical Co., Ltd., and Deputy General Manager and Financial Director of Shanghai Shanghai Fosun Pharmaceutical (Group) Co., Ltd from October 2010 to June 2013. Since July 2013, he has been the Senior Vice President of Ziguang Group Co., Ltd. Mr. Qiao Zhicheng's performance during the performance of two pharmaceutical listed companies, Qian Jin and Fosun, verified the successful experience of his star professional managers. During his tenure as general manager of Qianjin Pharmaceutical Industry, the sales income of Qianjin tablets, the leading product of Qianjin Pharmaceutical Industry, increased from 186 million yuan in 2004 to 508 million yuan per capsule in 2009, becoming the first brand of gynecological proprietary Chinese medicine. Compared with Mr. Li Yi's background in electronic technology and real estate, Mr. Qiao Zhicheng's medical experience is more suitable for the development of the company.

Ancient Han Health-preserving essence, the leading product of Ziguang Guhan, is a secret variety of traditional Chinese medicine in tonifying proprietary Chinese medicine, which comes from the bamboo slips medical book "Health-preserving prescription" unearthed from the Western Han Dynasty tomb in Mawangdui, Changsha. It has profound cultural heritage, proven health-preserving efficacy and accumulated market reputation over the years, and has the potential to become a national brand. In 2012, the sales revenue of Guhan health care series reached 260 million yuan, which is at the critical point of great-leap-forward development. The maximum retail price limit of Guhan Health Fine in Hunan Province will be increased by 46% from May 15 this year, and the price increase at retail terminals will be gradually reflected. The introduction of star professional managers at this time will help to transform resources into performance and enhance the value of resources.

Second, the contract dispute with Tong Dexiang will be appealed, and the amount of loss is still uncertain.

The cause of the contract dispute between Ziguang Guhan and Tong Dexiang: in April 2007, Ziguang Guhan signed a "Cooperation Management Agreement" with Dexiang Pharmaceutical, which agreed that Ziguang Guhan would be responsible for the application and approval of large infusion technology and product approval for plastic bottles and soft bags. Together with Dexiang Pharmaceutical, it is responsible for the funds needed for project construction and the construction of a new plastic bottle and soft bag infusion production base. At the end of September 2009, the plastic bottle soft bag infusion production line was officially put into production. In 2009, the operating loss of Ziguang Guhan Pharmaceutical continued to expand, and it faced a complete suspension of production in the second quarter of 2010. In July 2010, Tong Dexiang Pharmaceutical submitted a written document to Ziguang Guhan, asking for the transfer of the management right of Ziguang Guhan Pharmaceutical. On August 20, 2010, Ziguang Guhan took back the management right of Ziguang Guhan Pharmaceutical. On September 30, 2010, the two sides signed the Asset Trusteeship Agreement, and Dexiang Pharmaceutical entrusted all the assets of its large infusion production line with plastic bottles and soft bags to Ziguang Guhan Pharmaceutical. On May 31, 2012, Tong Dexiang Pharmaceutical handed over the escrow assets to Ziguang Guhan Pharmaceutical. During the trusteeship period, the two sides discussed the way of asset disposal for many times. Tongde Xiangfang sued the Hengyang Intermediate people's Court without reaching an agreement with Ziguang Gu Han on the proposed Tongdexiang pharmaceutical assets, without signing any transaction contract and continuing negotiations between the two sides. appeal to order the company to pay the purchase price and bear the liability for breach of contract.

According to the above-mentioned judgment of first instance, Ziguang Guhan needs to pay a total of 87.469 million yuan, and Ziguang Guhan's announcement is expected to reduce the company's current profit by about 28.36 million yuan to 39.18 million yuan. The company will appeal the case, during the appeal period, the decision of the first instance can not take effect, and the outcome of the case is uncertain.

To take a step back, but what is the outcome of the verdict? the settlement of the contract dispute will enable the company to deal with the lossmaking Guhan Pharmaceuticals, which is better than short-term pain.

Profit forecast and investment advice: as the company in the above contract dispute case will appeal and the judgment result is uncertain, we will not adjust the profit forecast for the time being. It is estimated that the net profit from 2013 to 2015 will be 55 million yuan, 68 yuan and 86 million yuan, respectively, down 60.32% from the same period last year, an increase of 25.31% and 25.75%, and the corresponding EPS is 0.24,0.31,0.39 yuan. We are optimistic that the exclusive variety of Ziguang Guhan and the leading product Guhan Health preserving Jing, as a secret variety of tonifying proprietary Chinese medicine, have profound cultural heritage, proven health-preserving efficacy and accumulated market reputation over the years. Have the potential to become a national brand. Recently, the introduction of star professional managers, price increases and expansion outside the province constitute catalytic factors. Taking into account the nature of the company's resource-based pharmaceutical companies, and may be at the inflection point of profits from decline to rise, it is recommended to give a valuation premium, the target price range of 14.40-15.50 yuan, to maintain the "overweight" rating.

Risk factors: the final judgment of the contract dispute with Dexiang is still uncertain; Western medicine assets continue to lose money, which may continue to drag down the company's performance in the future; Ziguang Guhan's ability to expand sales outside the province is still uncertain.