Announce the share incentive plan. Tai Ling Pharmaceutical announced the share incentive plan on September 4 as a measure to motivate qualified employees. Under the plan, the company will pay no more than HK $20 million in cash to the trustee for the first time, and the trustee can use the money to buy shares in the company from the secondary market to reward qualified employees. The total number of shares held by the trustee under the scheme shall not exceed 10 per cent (i.e. 156 million shares) of the company's currently issued shares.
There is a strong intention to buy back shares. The company believes that the current share price is significantly lower than the intrinsic value of the company, so it recently announced its intention to repurchase shares. According to the decision of the shareholders' meeting on May 21, the company has the right to buy back no more than 130 million shares. However, we believe that there is still uncertainty about the number of shares repurchased in a timely manner. Positive catalyst. We believe that the share incentive scheme and possible share buybacks will be a positive catalyst for share prices to rise. After the implementation of the share incentive scheme, the company will use the first sum of no more than HK $20 million to flexibly purchase shares in the secondary market, thus providing strong support for the stock price. At the same time, the share incentive scheme also helps the company to attract talents and improve operational efficiency.
New products drive profit growth. In early August, the company announced the acquisition of all shares in Hunan Kexing Jimeng. The main product of the acquisition is Song Gardenia Pill, which is the only traditional Chinese medicine preparation approved by CFDA for the treatment of hepatitis C. At present, there are about 4.56 million chronic hepatitis C patients in China, with a large market capacity. We expect Songjia pills to be on the market early next year. Considering that the company still needs to spend some time on market education, we expect Songzhi Pill to contribute 100 million yuan in sales in 16 years. In addition, we expect that Xidi (uric acid peptide) will be certified by GMP at the end of this year and be listed early next year. The new MDS (myelodysplastic syndrome) indications are currently being declared for this variety, and we expect this declaration to be approved by CFDA at the beginning of 17. We believe that Xidichi will increase the quantity as soon as the new indication is approved.
Maintain the buy rating. Taking into account the contribution of new varieties, we raise our net profit forecasts for 15, 16 and 17 years to 101 million yuan (up 4751%), 169 million yuan (up 67%) and 245 million yuan (44% year-on-year). Taking into account the impact of SEO dilution, we estimate that the EPS of 15 years, 16 years and 17 years is 0.07,0.11 and 0.16 yuan respectively. We believe that strong earnings growth and possible mergers and acquisitions will be the catalyst for the rise in share prices. The company is currently valued at 18 times earnings in 15 years and 12 times earnings in 16 years. We keep the target price of HK $3.25 unchanged, corresponding to an increase of 106%. Considering the impact of IPO dilution, our current target price corresponds to a 15-year price-to-earnings ratio of 36 times and a 16-year price-to-earnings ratio of 24 times.
