Guide to this report: The company's revenue side is recovering, but multiple factors have caused performance to fall far short of expectations. In the context of cleaning up backward production capacity and delays in the registration system, the value of corporate reform and transformation has been highlighted.
Key points of investment:
Investment suggestions: After increasing channel investment, the company's revenue side is clearly recovering, but due to multiple factors, performance falls short of expectations, and we expect a breakthrough in reform and transformation. Considering the impact of the sharp decline in investment income, the 2016-2017 EPS was lowered to 0.02 yuan (-0.06) /0.04 yuan (-0.08), and the 2018 EPS is expected to be 0.09 yuan. At the same time, considering that the recovery of the company's main business, such as toothpaste, still requires a lot of investment, and short-term cost pressure is high. The target price was lowered to 12 yuan to maintain the “increase in holdings” rating.
The company's revenue growth rate has clearly rebounded, but there is still pressure on the profit side. Items such as sales expenses have greatly eroded profits, and the annual report performance has fallen short of market expectations. The company's annual revenue was 1.35 billion yuan, an increase of 14% over the previous year; Guimu deducted non-net profit of 170 million yuan, a decrease of 7.27 million yuan in losses compared to the previous year, and EPS was -0.32 yuan. The effect of the company's strategic adjustment to strengthen high-end traditional Chinese medicine toothpaste in 2015 was obvious. Revenue from daily chemicals increased by 12.9%, and gross margin was 21.96%, an increase of 3.85 percentage points over the previous year. The company increased channel marketing and established a mechanism to share entry fees and channel resources with dealers, which increased sales expenses by 40 million yuan, an increase of 22.6% over the previous year; the company's disposal of fixed assets caused losses of 38 million yuan, an increase of 30 million yuan over the previous year; in 2015, the investment income from the company's sale of financial assets was only 30 million yuan, a decrease of 240 million yuan over the previous year. Multiple factors contributed to losses in 2015.
In the context of cleaning up backward production capacity and delays in the registration system, the value of corporate reform and transformation has been highlighted. The company is owned by the Liuzhou State-owned Assets Administration Commission (33%). The current market value is only 4.4 billion yuan, and the reforms have brought great flexibility; at the same time, the company's balance ratio is only 44%, and the debt burden is light, leaving room for new business expansion. Supply-side reforms focus on eliminating backward production capacity. The company's pulp, sucralose, etc. businesses have been losing money for a long time. If reforms are implemented, it will help the company develop its main daily chemicals business.
Risk warning: Sales investment has not been converted into profit; state-owned enterprise reform has fallen short of expectations.