Events:
Zhejiang Zhenyuan reported in 2017 that its revenue reached 1.254 billion yuan, an increase of 5.96% over the same period last year, a net profit of 42.69 million yuan, an increase of 65.17% over the same period last year, and a net profit of 38.3 million yuan after deduction, an increase of 67.63% over the same period last year.
From the perspective of Q2 in a single quarter, the income was 630 million yuan, an increase of 8.65% over the same period last year, the net profit of returning to the mother was 31.71 million yuan, an increase of 78.87% over the same period last year, and the net profit after deducting non-profit was 29.49 million yuan, an increase of 90.03% over the same period last year.
Viewpoint:
1. The company's business is improving, and the improvement is obvious in the second quarter.
The business of each section of the company is improving, and the net profit of homing and deducting non-profit in the first half of the year increased by 65.17% and 67.63% respectively compared with the same period last year, while the improvement in the second quarter was particularly obvious. The net profit and non-net profit in the single quarter increased by 78.87% and 90.03% respectively compared with the same period last year. Due to the low base (only 1.5 million yuan net profit) in the third quarter of last year, the apparent performance growth rate will continue to be bright in the future.
From a business point of view:
1) Industrial sector: the overall income in the first half of the year was 211 million yuan, an increase of 26.13% over the same period last year, and the overall gross profit margin was 31.45%, an increase of 0.24pp over the same period last year.
Preparation: the restorative growth of preparation plate, adenosine methionine process can be used to solve the problem. The company's preparation section achieved revenue of 98.93 million yuan in the first half of the year, an increase of 23.49% over the same period last year, with a gross profit margin of 39.29%, a decrease of 1.93pp over the same period last year. The company's production capacity was limited last year due to the GMP certification of the oral solid preparation workshop and the impact of the G20 meeting. This year, the production capacity of the preparation plate has been solved and restorative growth has been achieved. At the same time, the problem of the process of AdenosylMethionine, a major potential product of the company, has been solved. We expect to achieve sales of about 20 million in the first half of 2017, and we expect to double the growth for the whole year.
API: the export volume of rice stars is rapid, and the price of making mycin is rising. The company's raw material medicine sector achieved revenue of 110 million yuan in the first half of the year, an increase of 29.93% over the same period last year, with a gross profit margin of 24.60%, an increase of 3.10pp over the same period last year. We believe that there are two main reasons for the growth of API revenue and gross profit of the company: the rapid export volume of ① rice stars. The company's export business is mainly sisomicin and netilmicin raw materials, with an income of 25.01 million yuan in the first half of the year, an increase of 114.36% over the same period last year. The price of ② syringomycin has risen sharply. The raw material drug for making mycin is the exclusive product of the company. according to our grass-roots research, the price of making mycin has doubled compared with that of the same period last year, contributing to the growth of revenue and gross profit margin of the company. We estimate that the sales of make-mycin in the first half of the year will be about 2000-30 million yuan.
2) Business sector: the overall income in the first half of the year was 1.044 billion yuan, an increase of 2.65% over the same period last year, and the overall gross profit margin was 12.53%, an increase of 1.32pp over the same period last year.
Traditional Chinese medicine and prepared pieces of traditional Chinese medicine: achieve steady growth. In the first half of the year, the overall revenue of the company's traditional Chinese medicine and traditional Chinese medicine slices business reached 120 million yuan, an increase of 13.42% over the same period last year, with a gross profit margin of 34.75%. Due to its high gross profit margin, the overall gross profit margin of the company's commercial sector increased. Among them, the income of prepared pieces of traditional Chinese medicine reached 76.76 million yuan in the first half of the year.
Medicine proprietary Chinese medicine: achieve steady growth. The company's revenue from proprietary Chinese medicines reached 852 million yuan in the first half of the year, an increase of 4.89% over the same period last year, with a gross profit margin of 7.85%, and an increase of 1.29pp over the same period last year. We judge that this is due to the increase in the proportion of retail business, which is faster than that of wholesale business.
In addition, the commercial sector is divided by channels (because of the offset between segments, the two businesses are larger than the overall income of the commercial sector). The company's wholesale business achieved 955 million yuan in revenue in the first half of the year, which remained basically stable, while retail chain business achieved 231 million yuan in revenue in the first half of the year, an increase of 12.72% over the same period last year. DTC pharmacy increased by 82.37% over the same period last year. The company's exploration of DTC pharmacy model has achieved initial results.
From the perspective of financial indicators, the sales expense rate, the management expense rate and the financial expense rate are 6.66%, 4.37% and-0.35%, respectively, compared with the same period last year. The overall change is little, and the increase in sales expense rate is mainly due to the increase in product market development expenses.
2. The process problem of AdenosylMethionine is solved, which is expected to promote the growth of the preparation plate, which has been troubling the company's AdenosylMethionine production capacity, and the company is also actively promoting the AdenosylMethionine raw material expansion project to ensure future supply. At present, AdenosylMethionine is only approved by Abbott, Haizheng and Zhenyuan in China. The sales volume of the sample hospital in 2016 was 302 million yuan. We estimate that the overall market is more than 1.2 billion. At present, Zhenyuan accounts for only 2% of the market share. As the company's production capacity problem is solved, it is expected to increase rapidly, and we expect it to more than double this year.
Conclusion:
We expect the company's net profit from 2017 to 2019 to be 0.86,1.21 and 161 million yuan, an increase of 89.91%, 40.91% and 33.12% respectively over the same period last year, and the corresponding PE is 39x, 28x and 21x respectively. We believe that there is an inflection point in the company's performance, with the traditional industrial business benefiting from capacity recovery and rising prices for mycin, while Adenosylmethionine is expected to bring great flexibility to the company's performance in the future and maintain its "recommended" rating.
