Main points of investment
Event: the company announced that 2017H1 operating income and net profit after deduction were 220 million yuan and 35 million yuan respectively, with year-on-year growth rates of 22.9% and 18.4% respectively. 2017Q2 operating income and net profit after deduction were 120 million yuan and 21 million yuan respectively, with year-on-year growth rates of 29.4% and 7.4% respectively. At the same time, the net profit growth rate from January to September 2016 is about 1030%.
The increase in sales investment in a single quarter led to a slowdown in net profit growth. 2017H1's revenue increased by about 23% year-on-year, mainly because the company strengthened the construction of large chains, hospitals and other terminals during the period, and continued to strengthen the promotion of Liuwei Dihuang pills, Ejiao and other products. Among them, the income of Liuwei Dihuang pills is about 50 million yuan, an increase of about 48.5% over the same period last year. The growth rate of 2017H1 deduction non-net profit is about 18.4%, which is about 4.5% lower than the income growth rate. The main reasons are as follows: 1) the gross profit margin has declined. The company's overall gross profit margin was about 28.9%, down about 0.5 percentage points. There are two specific reasons: a, the proportion of business income of medicinal materials has increased, which leads to the decline of gross profit margin caused by the change of the company's income structure. B, the rise in the price of raw materials has led to a decline in the gross profit margin of varieties such as Liuwei Dihuang pills and Ejiao, of which the gross profit margin of Liuwei Dihuang pills is about 54.9%, which is about 0.84 percentage points lower than the same period last year. 2) the sales cost has increased. The rate of expenses during the period is about 9.2%, an increase of about 0.7 percentage points. Mainly to increase investment in large chains and hospital terminals, resulting in a rapid growth in sales costs, exceeding the income growth rate of about 10 percentage points. Judging from the situation in a single quarter, 2017Q2's operating income and net profit after deducting non-profit were 120 million yuan and 21 million yuan respectively, representing a year-on-year growth rate of 29.4% and 7.4% respectively. Rapid growth on the revenue side continues, but net profit growth slows down significantly due to rising costs and increased expense inputs. We believe that the base of each product of the company is low, the income is obviously driven by the input of sales expenses, and the pulling effect of scale effect on net profit will be gradually reflected. It is expected that the company's net profit will increase by more than 30% in 2017.
Low-cost drug dividend continues, traditional Chinese medicine formula granule policy benefits from the target. The main results are as follows: 1) the price increase effect of low-cost drugs appears gradually, and the structure optimization improves the profit level. We believe that the trend of optimizing the company's profitability still exists and will continue to benefit from the policy dividend of market-oriented price adjustment. 2) the probability of opening the policy of granule policy of traditional Chinese medicine formula is high, and the company will be the first to benefit. The consultation method for the management of traditional Chinese medicine formula granules has been completed, and the official document is expected to be released.
After Zhejiang and Jiangxi provinces, new progress has been made in the policy of traditional Chinese medicine formula granules in Guangdong Province. we think that the liberalization of the pilot qualification of traditional Chinese medicine formula granules is the general trend. The company cooperates with Lanzhou Institute of Chemical Industry of the Chinese Academy of Sciences to grant the right to use and transfer the technical secrets of the preparation and identification of traditional Chinese medicine formula granules, which can produce more than 400 formula granules and is expected to obtain the first batch of production qualifications. occupy the market opportunity; 3) strengthen the production layout of authentic traditional Chinese medicine and cultivate new attractions. The company is building a standardized and large-scale base of Longyao bulk medicinal materials and Gansu Foci Natural Medicine Industrial Park, fully relying on the advantages of Gansu characteristic bulk Chinese herbal medicine resources, promote the integrated construction of the whole industrial chain of planting, warehousing, processing, distribution and management of characteristic Chinese medicinal materials, enhance the company's comprehensive competitiveness and sustainable development ability, and create new profit growth points.
Profit forecast and investment advice. It is estimated that the EPS in 2017-2019 will be 0.16,0.20,0.25 yuan respectively, and the corresponding PE will be 58 times, 46 times and 37 times respectively. We believe that the company has brand value, and the gradual increase in the revenue share of Liuwei Dihuang pills will optimize the profit structure, and will share the rapid growth of the Chinese medicine formula granule market and the big health field.
Risk hint: raw material price fluctuation risk, new capacity construction may not meet expectations.
