Incidents:
The company announced its 2018 semi-annual report, achieving revenue of 5.853 billion yuan in the first half of the year, an increase of 27.81% over the previous year; achieving net profit of 410 million yuan, an increase of 14.87% over the previous year, after deducting net profit of 389 million yuan from non-return mothers, an increase of 15.22% over the previous year; and the basic EPS was 0.37 yuan. The overall performance was in line with expectations.
Key points of investment:
Operation came out of the 17H2 trough, and the cost side improved quarter by quarter
Revenue was achieved in 18Q2 of 2,744 million yuan (+24.01% year-on-year), a slight decline from Q1. It is expected to be mainly due to stock preparation factors in the first quarter. The gross profit margin for Q2 was 49.33%, up 1.14pct from Q1, and the overall gross profit margin for the first half of the year was 48.72%. Due to the impact of the two-ticket system on 18H1 sales expenses to 1,528 million yuan, the Q2 sales expense ratio reached 25.28%, a slight decrease from Q1; as the company's integration work progressed, the management fee rate has now stabilized below 10%; the financial expense ratio is only 1.53% due to the company's excellent cash flow performance and the impact of exchange profit and loss has declined. The overall fee rate for the first half of the year was 35.86%, and the Q2 net interest rate was 11.54%, which performed well.
The original subsidiary is operating steadily, and Haimen Zhonglian is about to reverse its losses
Among the company's six major subsidiaries, Tianwei Biotech's revenue increased slightly year-on-year in the first half of the year, and net profit of 107 million yuan was basically the same as the same period last year; Hyundai Hasson and Hyundai Sichuan Airlines continued their good business momentum, with 18H1 year-on-year growth rates of 28.87% and 65.27% respectively; and Sinopharm Rongsheng's net profit declined somewhat. On the other hand, the loss reversal between the Haimen base and Sinopharm China Federation is also expected to be completed this year. Among them, Haimen lost 4.9014 million yuan in the first half of the year, and China Union also drastically reduced its loss to -6.7871 million yuan. After Tianjiang Pharmaceutical increased its capital to Zhonglian, the company's shareholding ratio fell to 47.85% and is no longer included in the consolidated report. It is expected that China Union's operations will also resume rapidly after the capital increase. Overall, the six original subsidiaries of 18H1 contributed about 105 million yuan to net profit based on the shareholding ratio, an increase of 30.94% over the previous year.
Wichida is recovering well and is expected to fulfill its full-year performance promise
Due to the impact of production cuts and price increases of raw materials, the performance of Wichida and its China Antibody Pharmaceuticals fell short of expectations. After entering 18 years, Wichida's production capacity gradually recovered, while prices of major products such as 6-APA and 7-ACA remained at recent high levels, supporting the company's product sales prices. 18H1 Sinopharm Wichida and Wichida China Pharmaceutical achieved net profit of 123 million yuan (+48.68%) and 61 million yuan (+25.52%) respectively, achieving net profit of 102 million yuan and 61 million yuan (+25.52%) after deduction. 51.18%, At 50.11%, it is expected that performance promises will be fulfilled under the premise of normal operation in the second half of the year. In addition, Sinopharm achieved net profit of 125 million yuan, an increase of 6.94% over the previous year, and the performance promise completion rate was 50.28%; while Sinopharm was affected by the “supplementary limit” policy, the profit side fell by about 10 million yuan compared to the same period last year. Overall, 18H1's newly merged subsidiary (disclosed profit) contributed about $245 million to net profit based on shareholding ratio, an increase of 16.84% over the previous year.
Operating cash flow is abundant, and consistency evaluation continues to advance
The company's operating cash flow for the full year of '17 reached 2,315 million yuan, and 18H1 was 269 million yuan. Given that the company's repayments were mostly concentrated in the fourth quarter, it is expected that this year's cash flow will maintain excellent performance. Abundant cash flow will also provide strong support for the company's R&D work, including consistency evaluations. As of the first half of the year, the company had 76 product regulations (including 25 large varieties and 16 potential varieties), and the cefuroxime tablets of Zhijun's two product specifications also successfully passed the consistency evaluation. This time, Shanghai's volume procurement plan and national procurement plan solicitation draft will greatly benefit the adoption of varieties. It will also help the company continue to grow later after the adoption of varieties with a large market space, such as nifenedipine control tablets, etc.
The integration of Sinopharm's chemical platforms is still worth looking forward to
2017 was the first year the company entered the integration period. Affected by factors such as product price fluctuations and rising raw material costs, the overall performance fell short of expectations. After entering 18 years, integration gradually deepened, and the cost side was obvious. Furthermore, in the future, the company will benefit from multiple varieties passing consistent evaluations, and Sinopharm Group's chemical platform will experience increased concentration on some of the varieties where competition is scattered. The company is expected to achieve net profit of 699/888/1,035 million yuan in 18/19/20, maintaining the “recommended” rating.
Risk warning
Product sales fell short of expectations, and the integration effect was weaker than expected
