Target price and valuation: we cover Donghui Pharmaceutical for the first time, giving a target price of HK $4.8, which is 88.4% higher than the current share price, corresponding to 20 times 2013 price-to-earnings ratio, which is close to the current average valuation of the Hong Kong pharmaceutical sector. It is estimated that the EPS for 2013-15 will be RMB 0.19, 0.25, 0.31, respectively, and the corresponding growth will be 34.1%, 29.2%, 26.5%. The conservative forecast for 2013-15 net profit CAGR is 28%, the current share price is only 11 times 13-year price-to-earnings ratio, PEG is only 0.4 times, the valuation is very attractive, we believe that the stock is seriously undervalued and given a buy rating.
Key assumption: in 1.2013-15, the sales growth of Ann series was 15%, 20%, 20%, 20%, 2. 2013-15, 60%, 40%, 30%, respectively.
We are different from the market
Successfully transformed into an excellent specialist drug company, the future growth is more definite and stable. Dong Rui Pharmaceutical has been successfully transformed into a company focusing on the R & D and sales of specialized drugs such as cardio-cerebrovascular and anti-infective drugs, and the profits from specialist drugs are contributing more and more. We believe that the company's transformation is very timely and correct, because specialist drugs such as antihypertensive drugs and anti-hepatitis B drugs have less volatility and more stable growth, the continuous introduction of new specialist drugs will lead to more definite and stable growth in the future.
An series of antihypertensive drugs will become one of the main growth points. The company an series of antihypertensive drugs include 4 kinds of antihypertensive drugs commonly used in clinic, which can meet the drug needs of most patients with hypertension. We believe that the Ann series will be one of the main growth points. the reasons are: 1) the fast-growing antihypertensive drug market brought about by rising urbanization and an aging population; 2) an excellent product mix to meet the different needs of patients; 3) the sales volume brought about by Ann Neizhen's entry into the 2012 edition of the base drug catalogue; 4) the vigorous promotion of community hospitals and retail pharmacies. We conservatively estimate that the sales CAGR of the Ann series in 2013-15 will reach 20%, accounting for ~ 40% of the preparation compared with 2015.
Lei Yi-de, a first-line anti-hepatitis B drug, will become one of the main growth points. Lei Yi de, as an international first-line anti-hepatitis B drug, is growing rapidly. We believe that Lei Yi de will become one of the main growth points. The reasons are: 1) China's huge market for hepatitis B drugs; 2) the replacement of other anti-hepatitis B drugs; 3) the replacement of high-priced original drugs; and 4) health insurance reimbursement for drugs in the national health insurance catalogue. We estimate that Leiyi's sales CAGR will reach 35% in 2013-15, accounting for 27% of the preparation compared with 2015.
Excellent corporate governance and stable management are conducive to long-term and healthy development. The chairman of the board of directors and the president of the company are held by different people, the chairman is only responsible for the affairs of the board of directors, the operation and management is held by experienced professional managers, the management team is stable, and the average working time in Dongrui is 12 years. We believe that excellent corporate governance structure and stable management team are conducive to the long-term and healthy development of the company.
Catalyst: 1. The reported performance exceeded expectations in 13 years; 2. Ann really grew faster than expected; 3. New drugs are constantly on the market.
Risk: 1. The price pressure of the new round of base drug bidding on Annezhen; 2. The new drug came to market later than expected.