Main points of investment
Event: the company achieved operating income of 1.258 billion yuan in 2016, an increase of 3.12% over the same period last year; net profit of 40.16 million yuan, down 14.47%; and net profit of 38.16 million yuan, down 12.9% from the same period last year.
Traditional Chinese medicine formula granule input period, short-term drag on performance. 1) Zhejiang Jingyuetang Pharmaceutical Co., Ltd., a wholly-owned subsidiary, obtained the scientific research pilot qualification of traditional Chinese medicine formula granules at the end of 2015, and made continuous investment in the construction of scientific research, production and marketing team in 2016. the three fees have increased by 8.84 million yuan; 2) although the sales business of formula particles has made a breakthrough, it is still in the initial stage, and the business income is still small, which is not enough to offset the costs, resulting in a slight decline in the overall profit level. 3) Commercial retail is basically stable, affected by the two-vote system and intensified market competition, the growth rate has slowed down, the future traditional Chinese medicine formula granule business will become a new performance growth point of the company.
Special qualification for scientific research of rare granules of traditional Chinese medicine in Zhejiang province. 1) Jingyue Tang's "key Technology and quality Research and Clinical trial of Formula granules" project was included in the scientific research project of traditional Chinese medicine formula granules in Zhejiang Province in December 2015. it is one of the only two enterprises in the province to be included in the project; 2) Zhejiang is the first province to include traditional Chinese medicine formula granules as an independent drug in the local health insurance coverage, and it is expected that it will be fully included in the health insurance in the province. 3) the company has more than 600 varieties for the scientific research and production of traditional Chinese medicine formula granules, which can basically meet the clinical formula needs of medical institutions, and the sales target is medical institutions in the province. At present, it has won the bid for Zhejiang Hospital of traditional Chinese Medicine, Xinchang County people's Hospital and other medical institutions, and the income of formula particles is expected to exceed 100 million in 2017.
The competition pattern of traditional Chinese medicine formula granule industry is good, and the market space is large. The main results are as follows: 1) compared with traditional Chinese medicine, formula granule has the advantages of controllable composition, portability and easy storage, which will partially replace traditional Chinese medicine. At present, the market size of prepared pieces of traditional Chinese medicine in China is about 160 billion. In 2015, the market size of traditional Chinese medicine formula granules is about 8 billion, which is expected to exceed 30 billion in 2020, and CAGR will reach 30%. 2) from the perspective of domestic competition, Tianjiang, Hongri, China Resources and other six companies have obtained production approvals, and some provinces have opened up the pilot program. 3) the core idea of "measures for the Management of traditional Chinese Medicine Formula granules (draft for soliciting opinions)" is intended to emphasize the improvement of access standards, which was fed back to CFDA in March 2016. We expect that after a series of consultation, it is a general trend to liberalize the pilot qualification of traditional Chinese medicine formula granules.
It is determined to increase production capacity and contribute to long-term development. 1) the company plans to spend an additional 600 million yuan on the construction of 1000 tons of traditional Chinese medicine formula granules and 10000 tons of traditional Chinese medicine prepared pieces; 2) the employee stock ownership plan participates in it and is optimistic about the future development for a long time.
Profit forecast and investment advice. It is estimated that the EPS of the company from 2017 to 2019 is 0.51,0.79,1.21 yuan respectively, and the corresponding price-to-earnings ratio is 54 times, 35 times and 23 times respectively. We believe that the company's traditional main business is sound, the new business of traditional Chinese medicine formula particles is strong, and the "buy" rating is maintained.
Risk tips: pharmaceutical commercial policy may be stricter; the progress of traditional Chinese medicine formula granule policy may not be as expected.