Item:

The company released its 2017 annual report on the evening of March 27. During the reporting period, the company realized operating income of 2.592 billion yuan, an increase of 17.05% over the same period last year, and a net profit of 526 million yuan, an increase of 9.07% over the same period last year. The company's performance is basically in line with our previous expectations.

Main viewpoints

1. Operating income maintained rapid growth, and gross profit margin rose steadily.

During the reporting period, the company's operating income maintained a momentum of rapid growth, an increase of 17.05% compared with the same period last year, but the reform of the marketing system implemented by the company in response to changes in the pharmaceutical industry also promoted the rapid growth of sales expenses. The company's sales expenses increased by 27.46% year-on-year to 782 million yuan, resulting in a year-on-year growth of only 9.07%. On the other hand, the fine cost control work implemented by the company's production and operation links has achieved initial results. during the reporting period, the company's comprehensive industrial gross profit margin increased steadily, increasing by 0.82 percentage points over the same period last year to 66.99%. On the other hand, the gross profit margin of proprietary Chinese medicine plate increased by 1.96 percentage points to 67.05%.

two。 In response to industry reform, marketing network construction goes deep into the grass-roots level, and high R & D investment breeds hope.

In order to cope with the impact of a series of reform policies such as "graded diagnosis and treatment" in the pharmaceutical industry, the company continued to carry out the reform of the marketing system based on the development of the grass-roots medical market during the reporting period, forming a three-dimensional marketing network system with in-depth development. As of the reporting period, the company's self-built sales team has developed more than 45000 primary health care institutions, and the sales income of 5 provinces has broken through 10 million yuan, and the business income brought by the primary medical service market has exceeded 500 million yuan. At the same time, the company continues to maintain an impressive record in the hospital and retail drugstore market. As of the reporting period, the company has developed more than 4000 hospitals at or above the second level, including more than 1400 tertiary hospitals, and has established business contacts with more than 80% of the end customers in the country, including more than 75000 retail drugstore VIP customers. In terms of R & D, the company continued to increase investment, increasing the number of R & D personnel by about 31% to 248 over the same period last year, and the amount of investment continued to remain unchanged at around 74 million yuan. At present, the company is developing many new drugs, covering not only tumor, hepatitis B, diabetes and many other treatment fields, but also various dosage forms such as small molecule targeted drugs, biological drugs and proprietary Chinese medicines. Among them, the Miao Tang Ning Tongluo, a small molecule targeted drug for type 2 diabetes, and Pruilasta, a small molecular targeted drug for hematoma treatment, are progressing smoothly. If successfully listed, it is expected to become a new performance growth point for the company in the future.

3. The integration project of diabetes industry chain is developing smoothly, exploring a new mode of chronic disease management.

During the reporting period, the Guiyang Diabetes Hospital of traditional Chinese Medicine under the company received more than 36000 patients, with an income of about 72 million yuan, an increase of about 40% over the same period last year. At the same time, the number of patients served by the remote chronic disease management platform built by the company also exceeded 50,000. The integration project of diabetes industry chain has formed a certain scale both online and offline. We expect that with the continuous deepening of the current round of "medical reform" in the field of medical services and the upgrading of people's demand for health management, the diabetes industry chain integration project laid out in advance by the company has a broader development prospect.

4. Investment advice:

We estimate that the company's operating income from 2018 to 2020 will be 3.034 billion yuan, 3.532 billion yuan and 3.994 billion yuan respectively, corresponding to the net profit of 627 million yuan, 756 million yuan and 883 million yuan, the EPS is 0.44,0.54 yuan and 0.63 yuan respectively, and the PE is 32 times, 27 times and 23 times respectively. In view of the fact that the reform of the company's marketing system facing the grass-roots medical market has achieved initial results, the expansion material of the grass-roots market after the landing of the "graded diagnosis and treatment" policy will promote the rapid expansion of the company's traditional business, and at the same time, the company is paying equal attention to the quantity and quality of new drug projects. among them, Tangning Tongluo and Puyi will take off if they can be successfully listed on the market. Considering that the company's historical valuation range is 40-50 times, we give the company a target range of 17.6-20 yuan in 2018, maintaining a "recommended" rating.

5. Risk Tips:

The risk of maintaining rapid growth in sales costs and the risk of unsuccessful new drug projects under development.