Main points of investment
Event: the company released its 2016 annual report, with revenue of 860 million yuan in 2016, + 86.3% year-on-year; net profit of 130 million yuan, + 125.8%; net profit of 120 million yuan, + 125.0%; net operating cash flow of-38.048 million yuan, year-on-year-137.7%. At the same time, the company announced that it intends to invest 110 million yuan to set up two CRO platform companies.
Financial expenses are a drag on the performance of the parent company, and the performance of CRO continues to grow rapidly. The company's revenue in 2016 was 860 million yuan, + 86.3% compared with the same period last year, mainly due to the annual consolidation of new students from wholly-owned subsidiaries acquired at the end of 2015.
From the perspective of sub-business: 1) preparation business: the income is 380 million yuan,-1.8% compared with the same period last year, of which the income of antibiotic and non-antibiotic preparation business is 190 million yuan, the year-on-year growth rate is + 0.2% and-3.7% respectively. With the advance of bidding, the preparation is expected to recover; 2) CRO business: income of 460 million yuan, of which pre-clinical 380 million yuan, clinical 80 million yuan. From the perspective of subsidiaries, the net profit contributed by CRO business is 110 million yuan, while that of non-CRO business is about 15 million yuan, mainly due to the increase of financial expenses brought about by the acquisition of new students. We believe that with the increase of funds in place, the financial expenses will be greatly reduced in 2017. at the same time, driven by the consistent evaluation and the acceleration of new drug research and development, CRO will continue the trend of rapid growth and will most likely exceed its performance commitments.
Two new CRO platform companies have been set up to dock the transformation projects of Wenzhou and Guangdong industrial parks. Combined with the "Science and Technology Action Plan for Prevention and Control of Major Diseases" being implemented by Shanghai Xinyuan, the company plans to set up two major CRO platform companies to undertake Wenzhou and Guangdong medical resources transformation projects: 1) Yueqing Xinyuan Health Medical Public Service platform:
Docking the small town of Yueqing Medical Island in Wenzhou City, the resources are high-quality projects and talent teams such as Wenzhou University, Wenzhou Medical University and its affiliated hospitals, medical research and service institutions inside and outside the province. 2) Guangdong Nanhai Xinyuan New Drug Incubator Public Service platform: docking with the Translational Medicine Center of Guangdong Academy of Medical Sciences (Nanhai), the resources are more than 20 tertiary hospitals under Guangdong Health and Family Planning Commission with Guangdong Provincial people's Hospital (Guangdong Academy of Medical Sciences) as the core, as well as more than 100 pharmaceutical and medical device enterprises in Guangdong Biopharmaceutical Industry Base.
CRO has become the main business of the company's strategy and is a clear target for the benefit of the new drug policy. The CRO industry is at the core of the pharmaceutical R & D industry chain and is indispensable for new drug research and development. Benefiting from the conformance evaluation and the acceleration of new drug approval, the domestic CRO industry is expected to expand rapidly. Shanghai Xinyuan, which is wholly owned by the company at the end of 2015, has become one of the industry leaders in the field of innovative drug CRO services. Considering that Shanghai New Peak has planned, participated in and established the industrial alliance of GLP, GCP and GMP through the GRDP management system, and actively prepared to build a technical platform for consistency evaluation, medical scientific research services and accurate medical technical services, we believe that the company is a clear beneficiary of new drug policies such as generic drug conformance evaluation and listing licensor system.
Profit forecast and investment advice. It is estimated that the EPS from 2017 to 2019 will be 0.78,0.97 and 1.19 yuan respectively, and the net profit of homing will maintain a compound growth rate of 36.5% in the next three years, and the corresponding share price PE will be 39 times, 31 times and 25 times respectively. Taking into account the broad prospects of CRO business and the company's storage and extension development expectations, we believe that the company's performance and valuation are expected to improve at the same time, maintaining the "buy" rating.
Risk hint: CRO business expansion may not be as expected, preparation or deposit price reduction risk, extension or lower than expected.
