Events:

According to the annual report released by Hyundai Pharmaceutical in 2017, the company's operating income for the whole of 2017 was 8.518 billion yuan, down 6.66 percent from the same period last year; the net profit belonging to shareholders of listed companies was 516 million yuan, an increase of 8.15 percent over the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 426 million yuan, an increase of 162.45% over the same period last year. The realization EPS is 0.46 yuan.

In 2016, the company's Q4 realized operating income of 1.93 billion yuan, down 22.75% from the same period last year; the net profit attributable to shareholders of listed companies was 70 million yuan, down 24.87% from the same period last year; and the net profit of shareholders belonging to listed companies after deducting non-recurring profits and losses was 10.7852 million yuan, realizing EPS of 0.06 yuan.

The company issues a profit distribution plan with a cash dividend of 0.5 yuan (including tax) for every ten shares.

Viewpoint:

1. The performance of the parent company is good, which is mainly dragged down by the restructuring company, especially Wichita.

The company's annual revenue was 8.518 billion yuan, down 6.66% from the same period last year, and its net profit was 516 million, an increase of 8.15%. The overall performance was lower than expected at the beginning of the year. Q4 performance growth rate-22.75%. In the first year of reorganization and integration, the overall operating pressure of the company is greater, and the efficiency after reorganization and integration has not been fully released during the labor pains period.

Judging from the situation of the restructuring and listing company, the completion of the performance commitment of the 17-year restructuring company is far lower than expected. Weiqida, Zhongkang, Sinopharm, Zhijun Pharmaceutical, Qinghai Pharmaceutical and Zhijun Medical Trade have all failed to achieve performance commitments. the combined performance is about 280 million (commitment and statement performance is 470 million, a difference of 190 million). The main companies that have great influence on consolidation are

Wichita (100% Holdings) completed only 29.13 million (16.19%) of the performance, a difference of 150 million from the committed performance of 179 million. Sales of 7mura ACAPY 6m APA are all down by more than 60%, and sales of penicillin industrial salt are down nearly 50%.

Zhongkang Pharmaceutical (33% holding) achieved a performance of 58.75%, affecting and showing a performance of about 1523. In 2017, under the pressure of industry overcapacity and environmental protection, Wechida and Zhongkang made serious exchange gains and losses, and their profits were far lower than the historical level, and the follow-up situation needs further observation.

Zhijun Pharmaceutical (51% holding) completed 88.46% of the performance, affecting the performance of 13.86 million. The main reason is the increase of R & D cost due to the influence of limited anti-limited infusion. However, Zhijun Pharmaceutical cefuroxime axetil tablets (250mg) first passed the generic drug quality and efficacy consistency evaluation, and there is a high probability that the performance commitment will be completed in 2018.

The rest: Sinopharmaceuticals wholeheartedly influence and express performance 5.06 million, Qinghai Pharmaceutical influence and performance 8.08 million, Pingshan Pharmaceutical influence and performance 450000.

From the perspective of the previous holding subsidiary, the Chinese medicine Rongsheng 68 million, a growth rate of 18.68%, showing a warming trend. Tianwei 155 million, the same as last year. Haimen Company lost 60.27 million (loss reduction 22 million), Chinese medicine Zhonglian lost 39.05 million (loss reduction 20 million), showing a trend for the better. The overall performance of the holding company in the previous period was 175 million, and the trend was obvious.

Without considering restructuring and consolidation, Hyundai's parent company and its subsidiaries' performance this year is only 236 million (Table 3), deducting 44 million of Haimen Zoomlion's flexibility to reduce losses, which is close to 200 million profits, and has gradually returned to the level of previous years.

In terms of sectors, the company's API revenue was 3.094 billion, down 25.16% from the same period last year, and its gross profit margin was 0.6% lower than that of the same period last year. The income of the preparation sector was 5.14 billion, up 14.65% over last year, and the gross profit margin increased by 6.13%. The income of the large health sector is 31.3385 million yuan, down 17.78% from last year, and the gross profit margin increased by 6.99%. During the reorganization pain period, the main Wechida influence is greater, the rising price dividend of API has not been realized, and the preparation plate as a whole is good.

According to the product line, the growth rate of the income end of the company's cardio-cerebrovascular drugs (939 million), narcotic drugs (375 million), anti-tumor (464 million), metabolism and endocrine (339 million) product lines was 11.52%, 11.71% 16.05% and 54.28%, respectively. The growth rate of anti-infection line (4.532 billion) was-15.15%, which decreased somewhat.

In terms of financial indicators: the rate of three expenses was 32.10, an increase of 7.74pp over the same period last year, of which the company's sales expense rate was 17.49%, which was 11.06% higher than that of the same period last year. 6.43pp, which was more affected by the two-vote system, and the management expense rate was 11.42%, which was 10.46% higher than that of the same period last year. 0.96pp. In terms of financial expenses, financial expenses for the whole year rose by more than 13 million, mainly related to exchange rate fluctuations.

2. National Pharmaceutical Group Pharmaceutical Industry platform is expected to benefit from consistency evaluation in the future.

After the reorganization, Sinopharmaceuticals Group's pharmaceutical industry platform has been built, and the company's main business will be further supplemented on the existing basis to form a rich product line, with more than 2000 drug approval numbers; at the same time, the company currently carries out 64 varieties of consistency evaluation (with an investment of 55.93 million yuan in 2017), and the first batch of cefuroxime axetil tablets (250mg) of China Pharmaceutical Zhijun passed the generic drug quality and efficacy consistency evaluation. The evaluation of generic drug consistency is the key work of the company in the next 3-5 years. Several more varieties are expected to pass the consistency evaluation in 2018, bringing flexibility to the preparation sector.

The company has 21 products of more than 100 million yuan, the core products are nifedipine controlled release tablets, human urine biochemical products (Tianwei), Dalixin (cefuroxime) series products, Dalifen (cefixime) series products, azithromycin series products, mannan peptides for injection, potassium clavulanate products (Weiqida raw materials), cephalosporin raw materials and intermediates and other best-selling products at home and abroad, with high market share and reputation. Through the integration of resources, resources will be allocated more efficiently in the future, the disorderly product layout scattered in various factories will be reasonably planned and integrated, and the echelon position of modern pharmaceuticals in key areas will be more stable.

The company continues to invest in research and development, with an investment of 338 million in R & D expenses, continues to focus on core advantage areas, and continues to promote new product declaration. In 2017, the company declared 5 production items and 29 supplementary applications, obtained 2 production approvals and 29 supplementary applications, and obtained 19 clinical approvals. The company will strive to promote the follow-up research and development of these products in accordance with the requirements of existing policies and regulations, and strive to be approved for listing as soon as possible.

3. More than 20 varieties have entered the new version of the medical insurance catalogue, and the treasure is waiting to be excavated.

The company and its subsidiaries have more than 20 products newly included in the health insurance catalogue. At present, a total of 524 varieties are included in the National essential Drug Catalog, and 717 varieties are included in the National basic Medical Insurance, Industrial and Commercial Insurance and Maternity Insurance Drug catalogue. another 424 varieties are included in the provincial basic medical insurance, industrial and commercial insurance and maternity insurance drug catalogue, and the new products entering the medical insurance catalogue will have a positive impact on the company. In particular, the exclusive products dextromethorphan sustained release suspension, minapram tablets and Jinye Baidu granules are expected to continue to release in 2018 and make a positive contribution to the company's profits.

4. Looking forward to 2018, pay attention to the consistency evaluation of preparation plate, the release of new medical insurance varieties and the follow-up changes of API plate.

2017 is the first year after the reorganization of the company, which is seriously affected by the raw material drugs and the failure of the restructuring company to meet its performance commitments. But in the long run, the company is positioned as a platform for the national pharmaceutical industry. The company has a large number of high-quality varieties, new medical insurance varieties, consistency evaluation varieties, and there is huge room for improvement in the future. At the same time, the API sector was seriously lower than expected in 2017, so we should continue to pay attention to the production and operation of the company's API sector. According to the current prices of 6murAPAMagel and ACA, Wechida and Zhongkang are expected to complete their performance commitments of 199 million and 121 million respectively in 2018, which will bring greater profit flexibility for the company. In 2018, Hyundai parent company performance 250 million + restructuring company completed 80% performance commitment and Table 409 million + Haimen Zhonglian continues to reduce losses by 5000 million flexibility, the company's performance is expected to reach more than 700 million.

The logic of the company's future growth is as follows:

The new capacity is put into production to further consolidate the position of the "chemical medicine platform": the project has an investment of 1.45 billion yuan, with a production capacity of 5.5 billion tablets / tablets / bags / bottles, and is expected to contribute nearly 3 billion of the income scale in the future, providing a guarantee for sustained growth.

Consistency evaluation: the company currently carries out 64 varieties of consistency evaluation.

Carding and integration of existing varieties: after the completion of the reorganization, the company has 21 products worth more than 100 million yuan. Through the integration of resources, resources will be allocated more efficiently in the future, and the disorderly product layout scattered in various factories will be reasonably planned and integrated. The echelon position of modern pharmaceuticals in key areas will be more stable.

Health insurance catalogue flexibility: the company and its subsidiaries, there are a number of new products into the health insurance catalogue. The new products in the health insurance catalogue will have a positive impact on the company, especially the exclusive products such as dextromethorphan sustained release suspension, minapram tablets and Jinye Baidu granules, which are expected to release volume in the future and make a positive contribution to the company's profits.

API: Haimen is expected to reverse losses, 6-APA, 7-ACA, penicillin industrial salt raw materials contribute elasticity.

Extension: as a chemical platform, the company's expectation of extension is still strong. In March and May 2016, the company held a general meeting of the board of directors and shareholders to reshape the strategic positioning of the company and reorganize the company's future development goals. The company's strategic positioning is adjusted as follows: "with the existing business as the supporting point, the combination of endogenous growth and epitaxial expansion, we are committed to becoming a comprehensive innovative pharmaceutical enterprise with scientific system and mechanism, leading talents, leading products and leading quality. The company's new strategic goal is to develop into a leading domestic and internationally renowned Youxiu pharmaceutical enterprise integrating R & D, production and marketing. "

Conclusion:

We expect that after the completion of the reorganization, the company, as a chemical platform under the National Pharmaceutical Co., Ltd., is expected to continue to improve its operating efficiency. In the short and medium term, due to the flexibility brought by the improvement of operating efficiency and the price increase of APIs, the performance is expected to be reversed. From a medium-and long-term point of view, the stock of 2013 varieties coruscate the second spring + dozens of new medical insurance varieties + R & D rich reserves to provide growth guarantee for the company. In addition, as a collectivized drug platform, it is expected that there will be actions in the future resource integration extension. So now, the company belongs to low valuation, performance reversal, high growth rate, catalysis, change target. We estimate that the net profit from 2018 to 2020 will be 713 million yuan, 886 million yuan and 1.05 billion yuan, respectively, and the corresponding growth rate will be 38.24%, 24.24%, 18.47%, 0.64 yuan, 0.80 yuan, 0.95 yuan respectively (not considering the cancellation and thickening of 53.5 million of the shares that did not meet the performance commitment for the time being), and the corresponding PE is 19x, 15x, 13x respectively. Maintain the "highly recommended" rating.

Risk Tips:

Reorganization and integration is lower than expected, and water needles and antibiotics are restricted.