Main points of investment:
Company announcement: the company released three quarterly reports in 2016, with revenue of 475 million yuan (- 17%), net profit of 25.44 million yuan (+ 15.83%) and net profit of 24.81 million yuan (+ 25.66%).
The company insists on taking variety as the core and deepens the stable development of the layout of orthopedic field. From the perspective of various business sectors of the company, 1) the stable development of the company's pharmaceutical business is in line with expectations, bringing revenue of 349 million yuan (+ 28%) and gross profit margin of 82.3% (+ 0.7pp) in the first three quarters of 16 years. 2) due to the termination of part of the agency business of Shaanxi Jinhua Pharmaceutical Chemical Company, the pharmaceutical business achieved revenue of 94.74 million yuan (- 64%) in the first half of the year. Jinhua Howson Hotel earned 288 million yuan (- 3.85%) in the first half of the year. Business and hotel business will continue to remain stable in the future.
The company's products are mainly Jintiange capsules, which are relatively simple. While increasing R & D investment in product development, we are also expanding and extending the category to improve its product structure. On the basis of consolidating the development of existing products, through investing in Changzhou Huasen and Huasen to enter the field of orthopaedic consumables with broader market space, strengthen their comprehensive layout and advantages in orthopaedics.
The market of orthopedic instruments is growing rapidly, and there is a large opportunity and space for localization. Orthopaedic materials account for nearly 40% of the global biomaterial market, and are departments with a large demand for biomaterials. China's orthopaedic implant market has grown from 6.74 billion in 2009 to nearly 15 billion in 15 years, with a compound growth rate of about 14%, accounting for about 5% of the domestic medical device market. At present, orthopedic implants in China account for about 10% of the global market, which contains a huge space for development. Changzhou Huasen products, which include trauma and spine, have a revenue of 160 million yuan in 2015 and a net profit of 47.44 million yuan, which can produce synergy with the company's existing business. Watson 3D can provide orthopedic digital customized solutions for doctors and patients. In China's orthopaedic implant market, overseas brands occupy a large market share (about 66%), including Johnson & Johnson, Stryker, Medtronic PLC, JaimiBangmei and so on. From the product type, the localization rate of trauma products is 60%. While spine and joint products are mainly imported. We believe that Changzhou Huasen's products are of excellent quality and have some exclusive products, such as core drill intramedullary nails, digital customized ankle products, pelvic steel plates, etc.; Changzhou Huasen's products also occupy a certain share in overseas markets. in the future, it will benefit from the two-wheel drive of the domestic market and the expansion of the overseas market.
The company adheres to the strategy of taking variety as the core, focuses on the market of orthopedic traditional Chinese medicine and the field of consumables, and maintains the "overweight" rating. Artificial tiger bone powder and Jintiange capsule have a high market share. Through additional issuance and additional investment in Changzhou Huasen, the company has launched mergers and acquisitions around orthopaedic segments, and its business has been expanded to the field of orthopedic consumables. Taking the three businesses of the company into consideration, we maintain the profit forecast. It is estimated that the return net profit from 2016 to 2018 will be 4566max 5783 / 73.9 million yuan, EPS 0.15max 0.19pm 0.24, corresponding to PE 84-66-52 if the IPO is completed in the first half of 2017, consider the investment income of 20 per cent of Changzhou Huasen equity and the increase in equity after the issuance. After full dilution in 16-18 years, the EPS was 0.15, 0.17, 0.22, respectively, and the corresponding PE was as much as 84-74-57.
