Key points of investment
Expense increases reduced net profit: in 2015, the company achieved revenue of 820 million yuan, an increase of 4.02% over the previous year; net profit attributable to shareholders of listed companies was 109.1115 million yuan, a decrease of 88.68% over the previous year; net profit attributable to shareholders of listed companies after deduction was 834,400 yuan, a decrease of 98.92% over the previous year. We analyzed that the decline in the company's profit was mainly due to the increase in three types of expenses. In 2015, the company's sales expenses, management expenses and financial expenses increased 24.65%, 26.24%, and 291.56%, respectively: the increase in sales expenses was mainly due to increased investment in market development, especially cosmetics business promotion; the increase in management expenses was due to an increase in R&D expenses, travel expenses and storage expenses; the increase in financial expenses was mainly due to an increase in short-term loans and a decrease in term deposits.
Oral formulation revenue was steady, and injectable sales declined: In 2015, the company's pharmaceutical sector achieved revenue of 666 million yuan, a year-on-year decrease of 3.83%. Among them, the performance of Zhenyuan Capsule and Xinyue Capsule increased, and their market share continued to increase, achieving revenue of 306 million yuan and 100 million yuan respectively, up 13.36% and 20.92% year-on-year; the revenue of intravenous injections and Qingkailing injections declined to varying degrees compared to the same period last year due to the impact of the bidding situation. Among them, Qingkailing injections achieved revenue of 500,36,800 yuan, a year-on-year decrease of 43.32%, and intravenous injections achieved revenue of 142 million yuan, a year-on-year decrease of 1.85%.
The volume of ginseng health products and food can be expected: in 2015, the company completed the filing of 8 new products on the basis of 34 original ginseng products; deep-processed ginseng products achieved sales revenue of 3.6287 million yuan; sales of ginseng health food began in August 2015, and the main products, red ginseng cream and red ginseng extract concentrate, achieved sales revenue of 10,000 yuan. The company set up a holding subsidiary Yisheng Han Ginseng (Beijing) Biotechnology Co., Ltd., which mainly markets and sells various products under the “Yisheng”, “Yisheng Chinese Ginseng” and “Chinese Ginseng” brands to guarantee the sale of ginseng and related products. In addition, in 2015, the company completed the cultivation of more than 1,700 acres of non-woodland ginseng; the main part of the civil engineering project for the ginseng tablet processing project was capped at the end of the year, and it is expected to be put into use in September this year.
The cosmetics business is growing rapidly: its sales model mainly uses beauty salon franchises and TV shopping. After a year of development, it gradually got on the right track and achieved revenue of 100 million yuan. Due to high upfront promotion expenses, the net profit loss was 108.39 million yuan. We expect the cosmetics sector to achieve revenue of 2-3 billion yuan and achieve profit this year.
Inventory increase: In 2015, the company's inventory reached 1,499 million yuan, accounting for 55.00% of total assets, an increase of 6.33% over 2014. In 2015, the company's assets were devalued by $12.876 million, mainly due to the accrual of bad debts and loss of inventory prices. We believe that with the increase in inventory, the company's financial pressure will increase, and it is expected that inventory pressure will be gradually released in 2016 through product consumption and the production of health products.
Profit forecast and investment rating: We forecast that the company achieved operating income of 1,039 million, 1,247 million and 1,497 million yuan respectively in 2016-2018, and the net profit attributable to shareholders of listed companies was 136 million, 212 million and 299 million yuan respectively. Corresponding to PE was 31.8 times, times 0.64 yuan and 14.5 times respectively. The company focuses on the development strategy of “building the whole ginseng industry chain”, giving full play to the synergistic effects of the six major sectors to promote common development. The ginseng health products sector is expected to become a new profit growth point, and the cosmetics business is expected to be profitable. However, considering the risks examined by the company's Securities Regulatory Commission and the financial risks brought about by ginseng inventory, we downgraded the company's rating to “increase holdings.”
Risk warning: risk of price reduction in tenders, risk of price reduction in ginseng inventory.
