Key points of investment:
The company's core competitiveness is its brand value. Two products, watermelon cream tablets and three gold tablets, are well-known. The company's main products are the watermelon cream series and the three gold tablets series. The estimated revenue in 2017 will reach 500 million yuan and 600 million yuan respectively, accounting for 30% and 36% of revenue respectively. According to estimates, the annual sales volume of the Watermelon Cream series has reached about 3 billion tablets, and the number of users has reached more than 60 million; the annual sales volume of Sanjin tablets has reached about 2.2 billion tablets, and the number of users has reached more than 30 million. The user base and brand value brought by the two star products that have been selling well for nearly 30 years are the core competitiveness of the company.
Watermelon cream series: Actively expand new varieties and increase customer unit prices. 70% of the sales channels for watermelon cream series products come from the OTC market and 30% from the hospital market. Currently, the main limiting factor is the low customer unit price. The daily dosage for watermelon cream throat moisturizer is only 0.72 yuan/day, and the daily dosage for watermelon cream spray is only 4 yuan/day. The company is actively expanding new categories and striving to raise the price per customer. The amount of daily medication for the newly launched throat cleansing spray was raised to 15 yuan/day. Currently, it mainly promotes the hospital market, and sales are expected to exceed 100 million within 1-2 years. At the same time, watermelon cream toothpaste and mouthwash products were steadily promoted. Sales in 2017 were close to 100 million, a nearly double increase over last year. We are optimistic that the company will make use of its good user base and continue to expand the brand using the original anti-inflammatory and pain-relieving concept of watermelon cream to increase customer unit prices.
Three Gold Film Series: Expanding the indications and gradually implementing tenders and price increases. The national market space for urological infections is around 8 billion. Benefiting from the country's antibiotic restriction policy in the last 5 years, proprietary Chinese medicines have grown at a higher rate, and antibiotic products have formed a certain substitution trend. The company is currently actively cooperating in formulating a new version of the national essential drug clinical guidelines and conducting clinical trials to prove that the three gold tablets can reduce the amount of antibiotics used and reduce the time for microorganisms to develop drug resistance. In 2015, the three gold tablets expanded the indications to prostatitis, and the target for the original indications plus new indications reached more than 1.5 billion yuan. Currently, the price of the Sanjin Film is being raised through a new round of tenders. The bid price has been raised by more than 30%, and the price increase from the factory is about 20%. The price execution in the 11 provinces that have already completed bidding is relatively good. The price increase is reflected in the statement.
The performance for the next three years is expected to grow year by year, and the first coverage will give a rating for increasing holdings. The problem of product aging, which limits the company's performance growth, is gradually being solved, and future performance growth is expected to gradually accelerate. The company's asset scale of 3 billion, 700 million in cash, 250 million in financial management, and 1 billion fixed assets+projects under construction are the production base of the Chinese Medicine Industry City, with net assets of 2.54 billion yuan. The estimated net profit for 2017-2019 is 438 million yuan, 488 million yuan, and 585 million yuan respectively. The growth rates for 2017-2019 are 11.2%, 11.4% and 19.9% respectively. Corresponding PE is 22 times, 19 times, and 16 times respectively. The first coverage gives a rating for increasing holdings.
Risk warning: the release progress of new products falls short of expectations
