Event: Jinling Pharmaceutical announced its 2015 report that its operating income in 2015 was 3.221 billion yuan, an increase of 16.21% over the same period last year. The net profit belonging to shareholders of listed companies was 208 million yuan, up 5.54% over the same period last year. The net profit after deducting non-profit was 174 million yuan, an increase of 1.70% over the same period last year. Basic earnings per share is 0.41 yuan. The company's 2015 distribution plan is 1.70 yuan for every 10 shares (before tax).
The pharmaceutical business was under pressure, and gross profit margin fell more than expected. In mid-2015, the traditional Chinese medicine sector increased by 8.10% compared with the same period last year, and fell 5.25% at the end of the year. Exceeding our expectations, it shows that the sales of the core variety Mailuoning injection continue to decline under the dual pressure of price reduction through bidding and the safety of traditional Chinese medicine injection, considering that sales of Mailuoning have declined for six consecutive years, and doubts about the safety nature of traditional Chinese medicine have weakened. Sales and selling prices are basically at the bottom, and we expect the traditional Chinese medicine business to stabilize and pick up in 2016. In 2015, Western medicine sales totaled 1.823 billion yuan, up 23.24% from the same period last year, but the gross profit margin fell to 19.34%, the lowest of all businesses, thus making the overall gross profit margin lower than we had expected.
Medical services are growing steadily, and the "Jinling + Drum Tower" model is successful. In 2015, the operating income of Suqian Hospital was 857 million yuan, an increase of 10.93% over the same period last year, while that of Yizheng Hospital was 260 million yuan, an increase of 9.39% over the same period last year, and that of Anqing Petrochemical Hospital was 206 million yuan.
Compared with before the acquisition, the net profit margins of Yizheng Hospital and Anqing Hospital have improved, and we expect the net profit margin to further improve in 2016 and 2017. Suqian Hospital has been restructured and operated for 10 years, with mature operation and management, and will stabilize at a net profit margin of about 10% in the past three years.
Give a rating of "cautious recommendation". We expect the company's EPS for 16-17 years to be 0.44 yuan and 0.49 yuan respectively, corresponding to the closing price of 12.70 yuan on March 28th, with a price-to-earnings ratio of 29 and 26 times, respectively. As Mailuoning is a national protected variety of traditional Chinese medicine, in view of the company's industry status and successful replication of epitaxial hospital acquisitions, we give it a "cautious recommendation" rating.
Risk tips: uncertainty of medical service extension and substantial price reduction of bidding products
