Core ideas:

Event: the company reported that its net profit fell by 43%.

According to the report released by the company, the operating income in the first half of the year was 814 million yuan, an increase of 8.26% over the same period last year; the net profit attributed to the parent company was 53.21 million yuan, down 42.83% from the same period last year; and the net profit after deduction was 48.44 million yuan, down 43.73% from the same period last year. Income growth exists in Tianji's new consolidation factors this year, and the decline in net profit is mainly affected by the marketing reform of the traditional Chinese medicine sector and the increase in cost investment.

The reform of antiviral marketing is beneficial to the healthy development of the company in the long run.

The income of proprietary Chinese medicine reached 270 million yuan in the first half of the year, down 37.79 percent from the same period last year. Among them, the sales revenue of the core product antiviral oral liquid was 132 million yuan, down 44.82% from the same period last year; the sales revenue of the orange series was 90.26 million yuan, down 1.31% from the same period last year; and the sales revenue of the remaining products, including Banlangen granules and other proprietary Chinese medicine, was 47.4 million yuan, down 54.42% from the same period last year. Anti-virus is a drag on performance as the core product marketing reform of proprietary Chinese medicine. due to the problems of overstock and stagnant market share in the agent model in the past, the company changed to a self-operated direct control terminal at the end of 2015, and its short-term performance was under pressure. but in the medium and long term, it is conducive to the healthy development of traditional Chinese medicine.

The prepared slices are expanding healthily, and the business of health products remains stable.

The income of the prepared pieces of traditional Chinese medicine business reached 228 million yuan in the first half of the year, an increase of 37.60% over the same period last year. Among them, the income and net profit of Shanghai and Shenzhen pharmaceutical industry were 180 million yuan and 33.91 million yuan respectively, up 22% and 5% respectively from the same period last year. Hubei Tianji realized income and net profit of 150 million yuan and 27.55 million yuan respectively, and some of them were reported in the first half of the year. In the ② health products industry, Jiuji Biological Services achieved an income of 33.19 million yuan in the first half of the year, basically the same as last year.

The second phase of TCR project has been launched, and the small nucleic acid project has been carried out in an orderly manner.

The first phase of TCR in 2015 has been completed, and the second phase plans to include 36 cases to carry out a study on the symptoms of NSCLC and lung cancer. For other projects under study, small nucleic acid Cottlani has entered the rapid review channel of the Drug Review Center.

It is expected that the performance of the company in 16-18 years will be 0.21 yuan / share, 0.35 yuan / share and 0.43 yuan / share respectively, and the TCR technology is comparable to the international leader. We expect the company to maintain a "buy" rating at the current share price corresponding to PE67/40/33 times the company's EPS to 0.21, 0.35 in 16-17-18 (EPS is 0.27 in 2015).

Risk hint

Merger and acquisition integration is lower than expected; business development of prepared pieces of traditional Chinese medicine is lower than expected