Core viewpoints

The performance in the third quarter was lacklustre, with new product promotion expenses and R & D expenses rising sharply. In the first three quarters, the operating income was 222 million yuan, down 1.99% from the same period last year, and the net profit attributed to shareholders of listed companies was 29 million yuan, down 50.35% from the same period last year. Among them, the improvement of the cost level has a great impact on the performance of the company. During the reporting period, the company's sales expense rate was 42.42%, an increase of 6.98pp over last year, mainly due to the listing and sale of tenofovir in July this year, early product promotion and market development and promotion expenses of 11.2 million yuan; the company's management expense rate of 31.52%, an increase of 2.30pp over the same period last year, partly due to an increase of 11.7 million yuan in R & D spending during the reporting period.

Wait for tenofovir to release volume and look forward to next year's performance. Tenofovir entered the national health insurance this year, and the company, as the first imitation of hepatitis B indications, was sold in July this year under the brand name "Fu Ganding". Up to now, Fuganding has been put on record in 14 provinces / cities, and 76% of the hospitals with annual sales of oral antivirals exceeding 4 million have been covered (through promoters and direct marketing). It is expected that Fuganding will gradually contribute important performance to the company and look forward to its performance next year.

The reserve of new drugs for liver disease is becoming more and more abundant, and we are optimistic about the future development of the company. At present, the company has stored two first-class new drugs for hepatitis B, one new drug for fatty liver and one new drug for anti-liver cancer; on September 25th, Guangshengtang and Wuxi Apptec jointly announced that the new liver cancer targeting drug GST-HG161, jointly developed, has identified a preclinical candidate compound (PCC), which has the characteristics of remarkable efficacy, good target selectivity, high safety and strong medicinal properties. In the long run, with the continuous enrichment of the variety of the company, the industry status is expected to be gradually enhanced.

Financial forecasts and investment suggestions

Due to the increase in sales expenses and R & D expenses of the company, and the sales volume of "Fuganding" needs a process, there is a great pressure on the performance in 2017. We downgrade the company's profit forecast and estimate that the company's EPS for 17-19 will be 0.56 PE 1.02 yuan (the original forecast is 1.60 yuan 0.68 PE), and maintain the buy rating according to the target price of 52.02 yuan in 2018.

Risk hint

If tenofovir sales fall short of expectations, it may affect the company's performance.