Sales exceeded HK $1 billion and the pace of recovery accelerated
In 2017, the company's revenue was 1.009 billion Hong Kong dollars (+ 8.5%), gross profit was 680 million Hong Kong dollars (+ 2.1%), and the overall gross profit margin fell to 67.7% (- 4.2pct), mainly due to the increase in the price of raw materials, the production cost of patented products and the appreciation of the euro. The homing net profit is 233 million Hong Kong dollars (- 7.7%). The growth rate of homing net profit is slightly lower than expected, mainly due to the company's continued efforts to strengthen research and development and high R & D expenses.
Imported products resume growth, pillar brands get out of the bottleneck
Imported products resumed growth in 2017, with sales of HK $544 million (+ 11.2%), accounting for 54% of total sales (+ 1.3 pct). Imported products have broken through the sales bottleneck one after another: Fipley achieved 25% revenue growth, with annual income exceeding HK $100 million for the first time, fully enjoying the expansion dividend of the iron supplement market. Driven by the solution to the problems of the sales force and the new specifications, Zainingping reversed the position in 2017, with revenue growth of 17%.
Blockbuster products can increase sales by 4.6% on the basis of a high base, and the advantage is further expanded.
The growth of patented products is stable, and the growth of Ruibao is higher than expected.
Patented products grew steadily in 2017, with sales of HK $464 million (+ 5.5%). You Jingan and Li Maiqing increased by 5.4% and 9.1% respectively. After experiencing a decline in sales caused by industry consolidation, Ruibao rebounded strongly in 2017, and the sales of sample hospitals increased by 110%. It is expected to maintain a growth rate of 50% in the next 2-3 years. With the completion of the Ruibao active drug ingredient production line and Huangshan Snake Farm, the company will further reduce costs and increase the gross profit margin of patented products while improving the quality of active ingredients of drugs from animal sources.
The good news of the products under development has spread frequently, and a number of blockbuster products are moving forward smoothly.
In 2017, the company invested more resources in new drug research and development, with a total investment of HK $185 million, accounting for 18.3% of revenue (partially capitalized). The third phase of oncolytic virus international multicenter clinic is progressing smoothly, and PD-L1 has obtained the approval of clinical trial. The clinical approval of Zingo, a rare local anesthesia delivery system for children, will fill the gap in the market, while the company has invested in American biotechnology companies to promote the development of critical pediatric drugs.
Risk hint: the uncertainty of the new drug review policy, the progress of research and development is not as expected.
Investment advice: determine long-term growth and maintain buy rating
It is predicted that the company's homing net profit for 2018-2020 will be about HK $275 million, an increase of about 18.4%, 14.7% and 14.8%, with the current share price corresponding to a PE of 23.1 pounds, 20.1 pounds and 17.5x. Considering the acceleration of performance in the next three years, with the clinical advance of innovative drugs, the company's certainty of performance growth and market capitalization are expected to increase significantly, maintaining a reasonable valuation and "buy" rating of HK $14.0-15.7 in the coming year.
