Incidents:
On April 25, 2017, the company released a performance report: achieved revenue of 72.15 million yuan in 2016, a decrease of 43.02% over the previous year; achieved net profit of 2.09 million yuan, a decrease of 91.87% over the previous year; Q1 of 2017 achieved revenue of 10.29 million yuan, an increase of 21.28% over the previous year, and Guimu's net profit loss was 2.93 million yuan, a year-on-year decrease of 1908.50%.
Comment:
Factors such as self-inspection and verification of clinical trial data led to a 91.87% year-on-year decrease in net profit in 2016:
In 2016, the company achieved net profit of 2.09 million yuan, a year-on-year decrease of 91.87%. The decline in performance was mainly due to the company's influence by industry factors such as self-inspection and verification of drug clinical trial data, and the slowdown in clinical research trial project progress.
Expenses during Q1 2017 affected performance, and the proportion of expenses in future periods is expected to return to normal:
In 2017, the company lost 2.93 million yuan of net profit to the parent in Q1, a year-on-year decrease of 1908.50%, mainly due to a slowdown in project revenue confirmation and an increase in expenses during the period due to self-inspection and verification of clinical trial data. Among them, Sanfee's revenue share increased from 26.73% in Q1 2015 to 83.93% in Q1 2017. The company has basically completed data self-inspection and verification in Q1 2017, and it is expected that the proportion of expenses will return to normal in the future period.
Benefiting from the consistency evaluation and the current successful implementation of BE projects, a reversal of performance is expected in '17:
According to the “Approval Number List for 289 Generic Drug Quality and Efficacy Consistency Evaluation Varieties” issued by the CFDA, there were 289 varieties at the end of 2018, and 17,740 approvals needed to complete the consistency evaluation. Consistency evaluations are carried out according to 20% approval selections, and the fee standard of 5 to 6 million yuan is estimated. Consistency evaluations will lead to 10 billion dollar market growth. In order to undertake the consistency evaluation project, the company has set up a consistency evaluation center. More than 80 pharmacological, pharmaceutical, clinical, registration, and commercial personnel have formed a consistency evaluation working group to achieve a seamless connection between the entire process of consistency evaluation, from pharmacy and clinical to registration and filing, and make full preparations for advancing the consistency evaluation project. The number of BE projects added by the company in Q1 in 2017 has exceeded the number for the whole of 2016. Currently, BE projects have been successfully carried out, which is expected to drive a reversal in the company's performance.
Profit Forecast and Valuation:
According to our estimates, the company's EPS in 17-19 was 0.20, 0.39, and 0.54 yuan respectively, corresponding to 145, 76, and 55 times PE. According to the EPS of 0.20 yuan/share in '17, considering the company's growth and small market capitalization premium, 180 times PE was given. The corresponding target stock price was 36 yuan/share. Compared with the 2017/4/26 closing price of 29.54 yuan/share, there was room for a 22% increase. For the first time, it was covered and given a “highly recommended” rating.
Risk warning: The progress of the company's projects falls short of expectations, industry policy risks; market competition intensifies.