Event: the company released its three-quarter report in 2016, with revenue and deduction of non-net profit of 870 million yuan and 150 million yuan respectively in the first three quarters, up 70.3% and 210% respectively over the same period last year. At the same time, it is forecast that the net profit in 2016 will be about 2.2-240 million yuan.
The adjustment of income structure has helped the traditional main business to recover strongly. The company achieved high growth in operating income and net profit in the first three quarters of 2016, mainly due to: 1) the consolidated statements of Ningbo Tianheng and Yantai only Chu. Ningbo Tianheng Pharmaceutical Co., Ltd. has achieved annual consolidation, with an expected annual income of 340 million yuan and a contribution of about 60 million yuan, exceeding the 2016 performance commitment by 20%. In June 2016, the company completed the acquisition and consolidation of Zhichu Pharmaceutical, and is expected to contribute 70 million of its performance for the whole year. 2) under the influence of the industry, the company actively adjusts the structure of traditional main products, and the API products led by oxiracetam and sulfampicillin sodium show a substantial growth momentum under the positive influence of the industry.
During this period, the cost increased significantly, and the cost during the first three quarters was about 220 million yuan, an increase of 45.7% over the same period last year, mainly due to the complete consolidation of Tianheng Pharmaceutical Co., Ltd. and only the Chu Pharmaceutical Company (June-September). 2016Q3 revenue and deducted non-net profit were 380 million yuan and 70 million yuan respectively, a year-on-year growth rate of 73.4% and 202% respectively.
The industry environment is getting better, and it will have sustainable growth in the future. 1) since 2011, the income of the antibiotic industry has declined for three consecutive years, and the sales of anti-infective drugs in domestic public hospitals began to rebound sharply in 2014, rising to 21.7%, once again becoming the largest area of drug use in public hospitals. Only Chu Pharmaceutical Co., Ltd. is mainly engaged in antibiotics, and the proportion of domestic sales of gentamicin products has been expanding in the past two years, with sustainable growth in the future. 2) production process verification will be good for the company's API business. Oxiracetam production process verification has withdrawn the GMP certificates of two domestic API manufacturers, and it is expected that the company's oxiracetam API will be the biggest beneficiary. 3) generic drug consistency evaluation is good for Tianheng Pharmaceutical Co., Ltd. Toremifene is the exclusive domestic variety, mainly used in the treatment of breast cancer. Toremifen tablets belong to BCS category 1 products, is a high solubility-high permeability drug, can apply for exemption from BE test, if Toremifene passes the consistency evaluation, the company is expected to enjoy the "volume and price rise" market dividend.
Profit forecast and investment advice. According to the annual performance forecast of the company in 2016, it is estimated that the EPS from 2016 to 2018 is 0.58,0.80,1.07 yuan respectively (the original forecast is 0.53,0.80,1.07 yuan), and the corresponding PE is 43 times, 31 times and 23 times. The substantial recovery of the traditional main business makes the company coruscate new vitality, and a number of API and preparation products are expected to double the growth; Tianheng and only Chu also make the company's performance increase rapidly, and the company will enter the track of rapid development in the future and maintain its "buy" rating.
Risk hints: risks such as limited resistance policy, drug bidding and price reduction, achievement or undercommitment of M & An enterprises, etc.