Events:

The company announced on the evening of August 21 that its operating income from January to June was 360 million yuan, + 13.44% compared with the same period last year; the net profit from its mother was 50.7178 million yuan,-10.84% from the same period last year; and the net profit after deducting it was 49.7226 million yuan,-13.10% from the same period last year.

Viewpoint:

1. The reported results are basically in line with expectations, and the increase in R & D expenditure + provision for impairment affects the growth of short-term net profit. 1) the increase in revenue is basically in line with expectations, while the increase in R & D expenditure + provision for impairment affects the growth of short-term net profit. From a business point of view, the company's VB2+VB6 achieved revenue of about 300 million, revenue growth of 14.02% year-on-year, revenue growth is mainly from sales growth. The gross profit margin increased slightly compared with the same period last year, mainly due to the company's reform on the production side to improve efficiency and lower production costs per unit of product, offsetting the impact of falling prices. During the reporting period, the company controlled the cost, and the sales expense rate decreased by 0.89% compared with last year, but the overall management expense rate increased by 0.5% due to the increase in conformance evaluation expenditure and Mengzhou factory R & D expenses. at the same time, the net profit growth rate was affected by the impairment of fixed assets of 10.11 million yuan in technical transformation and environmental protection upgrading. For the whole year, considering that VB2 prices have stabilized and rebounded into the uplink channel, net profit growth is expected to achieve positive year-on-year growth.

2) the results for the whole year are expected to accelerate quarter by quarter. According to the company's disclosed data, in 2017, Q2 achieved revenue of 190 million yuan (Q1 revenue of 170 million yuan) and net profit of 26.2926 million yuan (Q1 net profit of 24.4252 million yuan). Revenue and net profit increased in the second quarter, mainly because VB2 and VB6 prices stabilized and rebounded at the end of the second quarter, VB2 prices stabilized from mid-June, and the overall performance improved. Combined with the quarterly business data of the company in 15 and 16 years, the company's revenue is obviously seasonal, coupled with the price of VB2 and VB6 stabilizing and rebounding, of which VB2 gradually stabilized from mid-June to 155 yuan / kg. At present, the price of kg,VB6 has rebounded from 220 yuan / kg to 270 yuan / kg since mid-April, under the background of stricter environmental protection this year (environmental protection verification is stronger than expected) We believe that the follow-up quotations of the two major products continue to be strong and there is still room for price increase, especially for VB2 varieties with strong pricing power, and the supply-side pattern is improved after the stricter environmental protection, and the main competitors are willing to increase prices obviously. generally speaking, we believe that VB2 prices will still have room and momentum to rise further for some time in the future.

2. The new chairman will take office soon, and the reform of state-owned enterprises may be accelerated.

Changtou Group is a wholly state-owned company established with the approval of the people's Government of Hubei Province, established in 2010, with strong strength and numerous assets. After joining the company in 2015, the company promised to become a regular profit from 2014 to 2017. from the actual operation situation, the company has undergone positive changes in marketing and internal management, and the operating efficiency has been significantly improved. Under the background of the acceleration of the reform of state-owned enterprises in Hubei, Guangji Pharmaceutical, as the only listed company under the flag of Changtu, is expected to become the operating platform of Changtu to vigorously develop the pharmaceutical and biological industry. the company may also create a second main business on the basis of inter-industry integration to achieve two-wheel drive to reduce operational risk. The company announced yesterday that the chairman of the company has resigned and that the new chairman may be appointed in the near future (Ms. Wang Pin, the director, will act as the chairman of the company during the vacancy of the chairman), and recommended by Changtou Group. An Jing and Yang Lin were selected as candidates for directors of the company, among which Anjing served as assistant to the chairman of Renfu Pharmaceutical, director and project manager of Renfu Pharmaceutical (Wuhan), and head of Renfu Pharmaceutical Investment Management Department. With a wealth of experience in capital operation, we can see that positive changes have taken place in the company. With the personnel in place one after another, the company's prospects are gradually clear, and it is expected that the follow-up capital operation may accelerate.

Conclusion:

Excluding extension and asset injection, we expect the company's return net profit from 2017 to 2019 to be 146 million yuan, 162 million yuan and 184 million yuan respectively, with year-on-year growth rates of 3.09%, 10.83% and 13.23% respectively, with corresponding PE of 29x, 26x and 23x, respectively. As the largest VB2 manufacturer in the world, with a production capacity of 4800 tons (accounting for nearly 50% of the global production capacity), the company has a strong pricing power for VB2 products, considering that downstream demand will enter the traditional procurement peak season in the fourth quarter, and the supply-side pattern will improve after the tightening of environmental protection, the main competitors are willing to increase prices obviously. generally speaking, we believe that VB2 prices will still have room and momentum to rise further for some time to come. Guangji, as a company we continue to follow, we have been keeping a close eye on its latest changes. Considering that the company's performance will accelerate quarter by quarter after the VB2 price stabilizes and the company's senior executives are in place, the progress of state-owned enterprise reform may be accelerated, giving it a "recommended" rating.

Risk hint: the rise in VB2 prices is not as expected, and the progress of state-owned enterprise reform is not as expected.