Main points of investment
Event: the company announced its 2017 results, KuaiBao, with an annual operating income of 500 million yuan and a net profit of 74 million yuan, an increase of about 38% and 22% respectively over the same period last year.
2017Q4 revenue growth, sales expenses continue to invest. 1) the growth rate of income is higher than expected, and the inflection point of operation appears.
Revenue in 2017 was about 500 million yuan, an increase of about 38 percent over the same period last year. Q4 revenue in 2017Q4 was about 180 million yuan, an increase of 85 percent over the same period last year. Mainly because the company continues to increase market development and investment, the layout effect appears one after another.
2017Q4 continued to strengthen the product market promotion in a single quarter, and the channel carding work has been basically completed, we believe that the trend of business inflection point is obvious. It is expected that the growth rate of Liuwei Dihuang pills in the company's products is stable, and the growth rate of second-line products such as Ejiao, Guben and few pills is relatively fast. 2) the investment in sales expenses continues. The net profit in 2017 was about 74 million yuan, an increase of about 22% over the same period last year. The net profit of Q4 in 2017Q4 was about 22 million yuan, an increase of 58% over the same period last year. Single-quarter net profit margin is the lowest for the whole year, and we expect its sales investment in the channel to continue. Due to the low base of the company's products, the input of sales expenses has a significant impact on revenue, and the production capacity in the new park is about to be completed, and revenue growth is expected to exceed 40% in 2018. And the scale effect of sales input on net profit will be gradually reflected in 2018, and the net profit growth rate in 2018 is expected to exceed 35%.
Low-cost drug dividend continues, traditional Chinese medicine formula granule policy benefits from the target. The main results are as follows: 1) the effect of raising the price of low-cost drugs appears gradually, or optimize the structure to improve the profit level. We believe that the company has more product approval documents, strong brand value, the trend of gradual optimization of its profitability still exists, and will continue to benefit from the policy dividend of market-oriented price adjustment; 2) the probability of opening up the policy of traditional Chinese medicine formula granules is relatively high, the company will be the first to benefit. New progress has been made in the policy of traditional Chinese medicine formula granules in Zhejiang, Jiangxi, Guangdong and other provinces, and we believe 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 old medicine bulk herbs and Gansu Foci Natural Medicine Industrial Park, fully relying on the advantages of Gansu characteristic bulk traditional Chinese medicine resources, promote the integrated construction of the whole industrial chain of planting, warehousing, processing, distribution and management of characteristic Chinese herbal medicines, 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 from 2017 to 2019 is 0.15,0.20,0.26 yuan respectively (the original forecast is 0.14,0.19,0.24 yuan respectively, but this adjustment is due to the change of income structure), and the corresponding PE is 70 times, 52 times and 39 times respectively. We believe that the company has brand value, after the new capacity is put into production, it will solve the problem of production bottleneck, cooperate with market sales and promotion will usher in a period of rapid growth, the business inflection point is obvious. The gradual increase in the income share of products such as Liuwei Dihuang pills and Ejiao with high gross margin will optimize the profit structure, and will share the rapidly growing dividends in the traditional Chinese medicine formula granule market and the big health sector. The prospect is worth looking forward to, and the rating will be upgraded to "buy".
Risk hint: raw material price fluctuation risk, new capacity construction may not meet expectations.
