Events:
The company released its 2017 performance forecast on February 27, with revenue of 1.258 billion yuan in 2016, up 3.12 percent from the same period last year, and net profit of 40.16 million, down 14.47 percent from the same period last year.
Comments:
The performance is in the lower limit expected in the three quarterly reports, mainly due to the fact that the traditional Chinese medicine formula granule business was in the investment period in 2016. The 2016 net profit of this announcement is 40.16 million yuan, which is lower than the expected annual net profit of 3756-51.64 million in the third quarterly report.
The main reason for the profit decline is that Zhejiang Jingyuetang Pharmaceutical Co., Ltd., a subsidiary of Zhejiang Jingyuetang Pharmaceutical Co., Ltd. in 2016, traditional Chinese medicine formula granule project early input costs and expenses are relatively small, Jingyuetang actually realized income after September, and the company continued to invest in the business, resulting in a decline in the company's performance.
The company will grow into a leading enterprise of traditional Chinese medicine formula granules in Zhejiang area. With the favorable stimulation of policies such as the liberalization of health insurance, the formula granule market in Zhejiang Province will usher in a period of rapid growth, we believe that the company's subsidiary Jingyuetang will become the leader in the province, and its competitive advantage has been fully demonstrated in the diversity of varieties on record, the acquisition of GMP certificates for drugs, the winning bid of hospitals such as hospitals of traditional Chinese medicine in Zhejiang Province, and the advance layout of production capacity. According to the relevant documents of the Provincial people's and Social Affairs Department, on July 1, 2017, traditional Chinese medicine formula particles may be fully included in health insurance in Zhejiang Province. Huatong Pharmaceutical, as the regional leader in the province, the performance flexibility has been greatly improved.
The fixed increase over a three-year period has progressed steadily. In August 2016, the company announced a three-year non-public offering plan for traditional Chinese medicine formula granules and prepared pieces of traditional Chinese medicine, which has been accepted by the CSRC. With a market capitalization of less than 4 billion, the company's 180 million employee stock ownership plan has participated in a large increase, of which the management borrowed 60 million, demonstrating the company's strong confidence in future development.
Profit forecast and valuation: the net profit from 2016 to 2018 is expected to be 40.25 million, 84.52 million and 140 million respectively, regardless of the corresponding valuation of 94X, 44x and 27x, and the corresponding valuation of diluted share capital is 110X, 52X and 31X. The company's compound growth rate will be as high as 87% in the next two years, corresponding to a PEG of much less than 1 in 17 years, and the current market capitalization has increased by only 4.4 billion, maintaining a "highly recommended" rating.
Risk hint: policy progress is not as expected; accelerated competition leads to a decline in product profitability.