Main points of investment
Event: the company's 2017 operating income and deducted non-net profit were about 1.7 billion yuan and-37 million yuan respectively, while revenue decreased by about 39%. The operating income and deducted non-net profit of 2017Q4 were about 610 million yuan and 42 million yuan respectively, with year-on-year growth rates of about 93% and 117% respectively. The operating income and deducted non-net profit of 2018Q1 were about 520 million yuan and 44 million yuan respectively, and the year-on-year growth rates were about 118% and 179%, respectively.
The chemical business hit bottom and rebounded, and the pharmaceutical business developed steadily. The increase in the price of chemical products on the revenue side is a bright spot. Revenue in 2017 was about 1.7 billion yuan, down about 39% from the same period last year. Among them, the revenue of the chemical sector was about 1.1 billion yuan, down about 5.4% from the same period last year, mainly due to overcapacity in the industry, but the prices of formaldehyde and urea rebounded by 44% and 22% respectively in 2017. We estimate that the supply of the industry tends to improve; the pharmaceutical sector is about 570 million yuan, down about 64% from the same period last year, mainly due to the cancellation of the transfer of circulation subsidiaries. If the impact is not taken into account, revenue growth in the pharmaceutical sector is about 21 per cent. Deducting non-net profit greatly reduces the loss, and the profit in a single quarter is normal. In 2017, the company deducted non-net profit of about-37 million yuan, greatly reducing losses. The specific analysis is as follows: 1) the provision for impairment of assets decreased significantly in 2017, and Kangxin Pharmaceutical gained investment income from the transfer; 2) the overall gross profit margin was about 28%, an increase of about 9% over the same period last year; and 3) the expense rate during the period was about 26%. An increase of about 3 percentage points year-on-year, including the repayment of some bank loans due, resulting in a significant reduction in financial expenses. In a single quarter, 2017Q4 operating income and deducted non-net profit were about 610 million yuan and 42 million yuan respectively, with year-on-year growth rates of about 93% and 117% respectively. 2018Q1 operating income and deducted non-net profit were about 520 million yuan and 44 million yuan respectively, with year-on-year growth rates of about 118% and 179% respectively. Compared with 2017Q4, the income of 2018Q1 declined month-on-month, mainly affected by the seasonal factors of the industry. The net profit is flat, among which the operating profit of the chemical sector has increased compared with the same period last year, which is related to the improvement of the relationship between supply and demand in the industry. We believe that the increase in the price of chemical products will enhance the profitability of enterprises, and the growth of pharmaceutical performance is stable, and the annual net profit is expected to exceed 100 million yuan.
With a two-pronged approach of chemical industry and medicine, the performance has increased steadily. 1) Urea regional leader, plate profit improvement. "Chi" brand urea has a high market share in Guizhou, strong brand effect, high customer loyalty, and has the advantages of production technology management and technology innovation. At present, the relationship between supply and demand in the industry is becoming more and more balanced, and it is expected that the price center of urea and methanol in 2018 will continue to improve compared with 2017. 2) the pharmaceutical sector is actively expanding channels. Strengthen the cooperation with commercial companies and OTC leading chain enterprises to assist the chain pharmaceutical industry to carry out chronic disease member management services and improve patient stickiness. 3) layout of diabetes business. Promote the construction of diabetes hospital, and make use of the company's diabetes professional brand, continue to promote the spread of the company's diabetes products among patients and doctors, at the same time, it will also drive the company's antihypertensive products Eucommia granule, antihypertensive tablets, Liuwei Dihuang capsule, Ganoderma lucidum capsule, nifedipine and other products sales.
Profit forecast and investment advice. We estimate that the EPS of the company from 2018 to 2020 is 0.07,0.10 and 0.14 yuan respectively, and the corresponding price-to-earnings ratio is 83 times, 55 times and 40 times respectively. The company's chemical business industry supply and demand gradually improved, or ushered in a short-term volume and price rise. Pharmaceutical business in the steady development of Chinese and Western medicine products at the same time, active layout of medical services. We believe that the company has price increases, extension and other catalysts, the first time to cover the "overweight" rating.
Risk tips: product sales may not meet expectations, market expansion or do not meet expectations.
