The growth rate of the China report is more than 20%, which is in line with expectations.
In the company announcement on August 28, the company reported that income, return net profit and non-net profit deducted 169.6, 26.0 and 2.58 billion yuan, up 27.9%, 21.0% and 20.3% over the same period last year, and the performance growth was in line with expectations. From a quarterly point of view, 2Q18 revenue grew by 28.1% year-on-year, and operating profit grew by 23.1% year-on-year (the mother net profit cannot be compared with the same period due to tax and fee accounting). Considering that the prepared slices business has benefited from the integration of smart pharmacies with the industry, and the agency business has benefited from network expansion, we expect the performance to grow by 21% and 20% in 18 years (EPS is 1.00,1.20 yuan respectively). With reference to comparable company valuation and historical valuation, we give the 18-year PE valuation 24-28 times, maintain the target price of 24-28 yuan, and maintain the "overweight" rating.
The growth of prepared slices was higher than expected, and the trade of medicinal materials rebounded.
1) the 1H18 of prepared pieces of traditional Chinese medicine increased by more than 40% to 3.8 billion yuan over the same period last year: the company's first "wisdom pharmacy", acting as a city central pharmacy, grabs the market share of local hospitals by virtue of the advantages of convenient frying and distribution, relieving hospital flow, etc., and the company promotes the implementation of "wisdom pharmacy" in Guangzhou, Shenzhen, Beijing, Shanghai, Chengdu, Puning, Kunming, Chongqing and Guiyang at full speed. At the same time, actively start the construction of Xiamen, Meihekou and other places, which is expected to cover more than 15 places this year, promoting the speed of prepared slices business (annual income growth is expected to sprint 50%) 2) the trade income of traditional Chinese medicine 1H18 increased by 26% to 4.8 billion yuan compared with the same period last year, which is the first rebound after three consecutive years of decline in 14-16 years and stable in 17 years. Taking into account the downstream demand and self-use demand, we maintain the forecast of steady income growth for the whole year.
Drug agency is stable, equipment circulation expands agent pipeline.
1) 1H18 revenue of pharmaceutical trade increased by 10% compared with the same period last year: pharmaceutical agents were originally the strong points of the company in Guangdong Province. In recent years, the export outside the province has been achieved through hospital acquisition, dealer acquisition, pharmacy trusteeship and so on. We believe that depending on the landing of provincial trusteeship and the cooperation of governments outside the province, the annual revenue growth rate of pharmaceutical trade is expected to rise.
2) 1H18 revenue of instrument circulation increased by 67% compared with the same period last year: the company's equipment circulation focuses on orthopaedic, surgical, ENT, diagnostic and other high-value consumables and small and medium-sized equipment, which now covers about 90% of the country, and the agency products include Jaime Bangmei, Xerox, Chuangsheng, Kanghui and other brands. the company plans to expand to non-orthopedic brands and domestic brands to enrich the agent pipeline.
The operating index is stable
1) sales expenses have increased by nearly 60% compared with the same period last year, of which nearly 80% of the incremental contribution comes from sales and promotion service fees, which we expect to be related to the two-vote system. 2) the cash flow performance is good, the cash-to-cash ratio of 1H18 is about 100%, and the net cash flow is significantly lower than the net profit, mainly due to the growth of inventory and operating receivables, which we think is related to the extension of the account period. 3) accounts receivable increased by 45% to 5.6 billion yuan compared with the same period last year, and accounts receivable has maintained rapid growth since 4Q17, which we expect to be related to the extension of the account period as a result of the expansion of equipment circulation. 4) inventory increased by 8% over the same period last year, of which nearly 90% of the incremental contribution came from inventory goods, which matched the growth of trade.
Maintain the "overweight" rating
Considering that the prepared slices business has benefited from the integration of smart pharmacy and industry, and the agency business has benefited from network expansion, we estimate that the company's net return profit for 2018-20 will be RMB 49.7 billion, up 21% and 20%, compared with the same period last year. With reference to the comparable company's PE valuation and historical valuation, the company will value PE 24-28 times in 2018, maintain the target price of 24-28 yuan, and maintain the "overweight" rating.
Risk hint: the promotion of the wisdom pharmacy does not meet the expectations, and the hospital trusteeship does not meet the expectations.