Current business growth is steady and is expected to accelerate in the second half of the year: the company's revenue for the first half of 2016 was 385 million yuan, an increase of 1% over the previous year, because some agency products had ceased operations, and overall revenue increased 32% after exclusion; net profit was 50 million yuan, an increase of 37% over the previous year. The company's overall revenue and profit continued to grow steadily. The company's business generally grew faster in the second half of the year, and is expected to maintain a high growth rate throughout the year.
Ribaoduo grew well, and gross margin fell to a normal level: Ribaoduo's sales increased 34% to 260 million yuan in the first half of the year, indicating that the product's advantages in terms of safety and stability in the cancer field are obvious. The decline in gross margin is mainly an adjustment of financial policies. Inventory costs for old products are lower, and it is expected that gross margin will remain at the current level in the future.
Shusi and Zhuo Ao remained steady: The company's own antipsychotic drug, Shushi, increased 61% to 86.6 million, mainly due to high opening factors and improved market conditions, and improved distribution channel inventories. Currently, only 3 domestic companies are producing and selling this product, with companies accounting for 35%, and it is expected that 7.5 million boxes will be sold throughout the year. Due to the restructuring of distributors, Zhuo Ao's sales fell 39%, but the gross margin of its own products all rebounded.
Song Gardenia pills and Xideke began contributing to performance in the second half of the year: The company's anti-hepatitis C traditional Chinese medicine product, Song Gardenia Pills, is the only traditional Chinese medicine approved by the National Bureau for the treatment of hepatitis C. This product began to be marketed and sold in June, and is expected to sell 50,000 boxes throughout the year. The new Class 1.1 drug, Siteck, which treats advanced breast cancer and non-small cell lung cancer, is expected to be marketed and generate some sales in the fourth quarter.
The acquisition covered the orthopedic field: the company signed an agreement with Novartis to buy the drug for treating osteoporosis Meikai, at a price of 900 million yuan. The product already has sales of around 200 million dollars in China, and will quickly bring revenue and profit to the company after delivery. There are 21 million osteoporosis patients in China, and only more than 1.4 million have received treatment drugs, and the market space is vast.
Maintaining the “buy” rating: Considering the product situation closely covered by mergers and acquisitions, we expect the company's EPS for 2016-2018 to be 0.07/0.10/0.12 respectively; due to industry policy factors, the launch time of new products fell short of expectations, so we gave the company 28 times PE in 2016 and lowered the target price to HK$2.4 to maintain the purchase rating.
Risk warning: Tendering puts price pressure; new product promotion falls short of expectations
