Investment suggestion
The company announced its results for the first quarter of 2017: revenue was 457 million yuan, up 6.19%; net profit returned to its mother was 91 million yuan, up 9.12%, corresponding to 0.11 yuan per share, deducting an increase of 4.84% in non-net profit, which was basically in line with expectations. Considering that the profit contribution of the company's main products is more than 90%, traditional Chinese medicine injection is under great pressure from health insurance control fees, and the future growth space is limited, so the rating is downgraded to "neutral" for the following reasons:
Traditional Chinese medicine injection is under great pressure from medical insurance. The company's main product, Tanreqing injection, contributes more than 90% of its profits, but it has been under great pressure from medical insurance control fees in recent years, and the scope of use has been clearly restricted under the new version of the medical insurance catalogue, which is limited to critically ill patients in second-class and above medical institutions. We think that in the long run, the growth space of Tanreqing injection is limited.
The room for short-term performance growth is limited. The company is still based on a single income structure in the short and medium term, and it is difficult for the product echelon to contribute to its performance in time. Among them, Dinggui Oil soft capsule (treating irritable bowel syndrome), Shufeng Zhitong capsule (treating migraine), Huadan Anshen mixture (anti-insomnia), Tanreqing oral liquid (new dosage form), Duranamine for injection (anti-tumor, national class 1.1 new anti-tumor biological drug), paclitaxel micelle for injection (new broad-spectrum anticancer drug, national class 2.2 new drug) is in phase Ⅲ clinical study. Youxinding capsule (antidepressant, 1.1 kinds of new traditional Chinese medicine) is in phase Ⅱ clinical study.
The biggest difference between us and the market. The market believes that the company has extension expectations, and the profit structure is expected to improve, but we believe that phlegm heat and clear gross profit account for more than 90%. Even if new varieties are supplemented by extension, there is still a single profit structure in the short and medium term, and there is pressure on performance growth.
Potential catalysts: bidding and price reduction; it is more difficult to develop new hospitals.
Profit forecast and valuation
We keep our earnings per share forecast for 2017 / 2018 unchanged at 0.34 yuan / 0.34 yuan. Lower the target price to 11.50 yuan (8.00%), which is 15.69% higher than the current share price. The target price is 34X/33X corresponding to 2017Compact 2018e PCME. Downgrade to neutral.
Risk.
The risk of product price reduction; the launch of new products is lower than expected; the progress of extension is lower than expected.