Main points of investment
Matters: the company announced its annual report in 2017 that the annual income was 802 million yuan, an increase of 12.15% over the same period last year, the net profit of returning home was 105 million yuan, down 25.82% from the same period last year, and the net profit after deducting non-profit was 113 million yuan, down 21.01% compared with the same period last year. No dividend, no increase. The company's performance in 2017 is in line with expectations.
Peace viewpoint:
The prosperity of VB2 continues to rise, and 2018Q1 is expected to start brilliantly. The company's main VB2 APIs account for about 85% of revenue, and the company's overall gross profit margin fell to 50.89% (- 1.30pp) because the average price of VB2 in 2017 was slightly lower than that in 2016. But with the VB2 price 2017Q3 explosive rise, it is now in 440-470 yuan / kg, while the VB2 price of 2016Q1 is between 200-260 / kg, the company's cost is about 120 yuan / kg, 2018Q1 VB2 sales are expected to be about 500 tons, we judge that 2018Q1 profits are even expected to exceed 2017 for the whole year.
2017 the performance is in line with expectations, and the increase in expense rate lowers profits. In 2017, the company's various expense rates increased, the sales expense rate was 3.42% (+ 0.19pp), and the management expense rate reached 19.49% (+ 1.11pp), of which 47.5 million yuan was invested in research and development (+ 66.03%). Atto vastatin and entecavir have both obtained clinical approval and are in the process of clinical sample production, and the preparation business is expected to become a new focus of the company in the future.
The impairment is fully calculated in 2017 and the performance motivation is sufficient in 2018. In 2017, the company made a total asset impairment loss of 33.8 million yuan (22.88 million for Wuxue Company, 11.27 million for Mengzhou Company and 4.65 million for Wisheng Company), which greatly exceeded the level of the previous two years. In addition, in September 2017, a fire occurred in the Huisheng pharmaceutical plus workshop of the subsidiary company, and production has been suspended since then, resulting in a loss of 26.27 million yuan for the company. It is expected that the VB6 business of the company will resume production in 2018. The new chairman of the company took office in September 2017. 2018 is the first full fiscal year after taking office, and the company is expected to have sufficient motivation to release its performance.
The price of VB2 is strong and flexible, focusing on the possibility that 2018Q1 performance may exceed expectations, and maintaining the "recommended" rating. The price of the company's main product VB2 continues to strengthen, 2018Q1 performance is expected to significantly exceed expectations, the company also has a strong momentum to release performance. Due to the sharp rise in the prices of major varieties, we have raised our EPS forecast for 2018-2019 from 0.89,1.07 yuan to 1.92,2.28 yuan, and estimated that EPS will be 2.66 yuan in 2020, maintaining the "recommended" rating, with a target price of 22 yuan.
Risk tips: 1) API price fluctuation risk: vitamins belong to the bulk API industry, the historical price fluctuation is large, if the price decline, the performance has the risk of fluctuation. 2) Safety and environmental protection risks:
The company's API production needs to follow strict safety and environmental protection standards, and there may be safety and environmental accidents caused by improper operation of equipment. 3) R & D risk: the company invests a large amount of money in drug research and development year by year, the demand for funds is large, and there is the risk of R & D failure.