Main points of investment
Event: the company issued a performance forecast for 2017, showing an increase of 8500-90 million yuan in net profit in 2017, an increase of 292-309% over the same period last year, while net profit after deducting non-profit increased by 6100-64 million, an increase of 337-353% over the same period last year.
Environmental protection verification promoted the price increase of core veterinary APIs, and the performance of Q4 significantly exceeded expectations. 2017Q4 realized deduction of non-return net profit of 3698-39.98 million yuan in a single quarter, a year-on-year increase of 574-628%. The total non-post-deduction net profit of Q4 in the single quarter is basically the same as that in the first three quarters, and the performance growth rate is significantly higher than expected. It is estimated that the main reason is that the price increase effect of veterinary drug varieties is beginning to appear. Since 2017, the state's strict inspection of environmental protection has led to the suspension or restriction of production by enterprises that do not meet the environmental standards. The production capacity of the company's main competitors in veterinary drug products has shrunk significantly, and the supply does not seek to push up prices. Ningxia Teri, a leading veterinary drug company in China, announced that it stopped production and rectification on December 4, 2017 due to environmental protection. Its market share of tylosin and tilmicosin was 63% and 54% respectively, resulting in a significant reduction in market supply. Data from Health.com show that the market price of tylosin has risen from 200 yuan in early 2017 to 480 yuan in December and has now exceeded 500 yuan, while the price of tilmicosin has risen from about 300 yuan in July 2017 to more than 500 yuan. As a leading veterinary drug company in China, the company has successfully passed the environmental protection verification and maintained normal production, and the production capacity of AIV and spectinomycin veterinary drugs is expected to be put into production in the second half of 2018, which can enjoy the price increase dividend brought by industry changes. Tylosin, AIV, tilmicosin, spectinomycin and other major products are estimated to contribute no less than 300 million net profit in 18 years according to the annual report disclosed production capacity and current prices, significantly thickening the performance.
The relocation of preparations ushered in new developments, and consistency evaluation was ready to take place. The relocation of the company's preparation production base has been completed, new equipment and new technology have been adopted, the production efficiency has been improved while the cost has been reduced, and the gross profit margin of the preparation business has continued to rise. Consistency evaluation provides new opportunities for the development of the company. Kang Lisheng specializes in new drug development and consistency evaluation research, and has the leading R & D strength in the industry, which helps to enhance the strength of the company's consistency evaluation. CFDA website shows that the company has applied for the record of reference preparations for 19 products, including simvastatin, amoxicillin, glipizide and other large varieties, BE research is steadily advancing, with the products have passed the consistency evaluation, is expected to usher in a substantial increase in preparation business.
The operating efficiency continues to improve and the performance is greatly improved. Since 2015, the company has made great efforts to promote internal resource integration and product restructuring. On the production side, improve the process level and production efficiency, implement sunshine procurement to reduce material procurement costs, and significantly reduce production costs, with a comprehensive gross profit margin rising from 18% in the 2017 annual report to 25% in the third quarterly report of 2014. At the sales end, strengthen the development of strategic varieties, Tylosin and other veterinary drugs actively open up major customers, antibiotic preparations to the international market, the product structure has been significantly improved. We will reverse losses in 2015, maintain rapid growth in net profit in 16-17, and maintain rapid growth in new capacity plus price increases in 18 years.
Profit forecast and investment advice. It is estimated that the EPS from 2017 to 2019 is 0.20,0.48,0.60 yuan respectively, and the corresponding PE is 46 times, 19 times and 16 times respectively. Cover for the first time, giving a "buy" rating. With reference to the average valuation of the chemical preparation and API industry is 36 times and 30 times respectively, the company is conservatively valued at 30 times in 2018, and the target price is 14.40 yuan.
Risk tips: the risk of price reduction of veterinary drug products; the risk of capacity release progress or lower than expected risk.