The company originated at the grassroots level in Shaoxing, Zhejiang, and its core business is the wholesale and retail of pharmaceuticals. Recently, the pharmaceutical industry has been growing rapidly, relying on dividends from traditional Chinese medicine tablets and Chinese medicine formulations.
The company's pharmaceutical wholesale business is the company's main source of revenue, mainly net sales, and is less affected by the “two-ticket system”. The company has established an integrated drug distribution network between urban and rural areas, covering Shaoxing, Xiaoshan, Yuhang and other places. The gross margin of the wholesale business is relatively low, and there is no obvious cyclicality, which is the guarantee of the company's stable cash flow.
The company's pharmaceutical retail business is rooted in rural areas. They are all direct management models, and most of them have medical insurance qualifications. The company's retail stores expanded in an orderly manner and set up DTP pharmacies. Under the major trend of pharmaceutical analysis and prescription outflow, performance continued to grow.
Under favorable policies on traditional Chinese medicine tablets and Chinese medicine formula pellets, Huatong Pharmaceutical gained a first-mover advantage in Zhejiang Province, and its manufacturing business developed by leaps and bounds. The company formulated a “one aircraft, two wings” strategic layout with the aim of winning the market with “quality and service” and creating brand advantages. The Chinese medicine tablets and Chinese medicine formula pellets business will be the core driving force for the company's future development, and the company will also use this to complete the optimization of its business structure.
Profit forecast: We expect the company's net profit to be 48 million, 61 million and 77 million yuan respectively in 2018-2020, up 14%, 28% and 26%, respectively. EPS in 2018-2020 will be 0.23 yuan, 0.29 yuan and 0.37 yuan respectively. The current stock price corresponds to 35, 27, and 22 times PE in 18, 19, and 20 respectively, giving the company a “highly recommended” investment rating.
Risk warning: policy progress falls short of expectations; competition for traditional Chinese medicine formula pellets is accelerating