Events:

Hanyu Pharmaceutical released the third quarter report of 2018, the company achieved operating income of 905 million yuan in the first three quarters of 2018, an increase of 26.67 percent over the same period last year, while the net profit belonging to shareholders of listed companies was 294 million yuan, an increase of 25.27 percent over the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 274 million yuan, an increase of 21.15% over the same period last year. The realization EPS is 0.32 yuan.

In 2018, the company's Q2 realized operating income of 258 million yuan, an increase of 9.63% over the same period last year, and the net profit belonging to shareholders of listed companies was 84 million yuan, an increase of 13.03% over the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 76 million yuan, an increase of 8.94% over the same period last year. The realization EPS is 0.09 yuan.

Viewpoint:

1. The performance is in line with expectations, the foreign business continues to exceed expectations, and the domestic polypeptide business meets expectations, resulting in a decline in maturity.

The company's operating income in the first three quarters of 2018 was 905 million yuan, an increase of 26.67% over the same period last year, and its net profit was 294 million yuan, an increase of 25.27%, in line with market expectations.

Split from the point of view of the whole plate

Overseas business revenue is 272 million, a growth rate of 70.28%, which is further faster than that reported in China. The company's overseas business has exceeded expectations for many quarters, reflecting the company's core competitiveness in peptide synthesis. The overall contribution profit of overseas business in the first three quarters is expected to be close to 200 million. With the putting into use of the API production base of Wuhan subsidiary, the pressure on the production capacity of APIs will be alleviated in the future, and the company's overseas business will continue to grow.

The income of domestic preparations is 464 million, with a growth rate of 50.88%. Some of them have an impact on income from low to high, but on the whole, domestic preparations are also at the inflection point of volume. Especially terlivasopressin and oxytocin, the growth rate of sample hospital data is better. In the future, with the addition of children's acetaminophen products of Teri vasopressin, Etiopeptide and its subsidiary Chengji Pharmaceutical Co., Ltd., and the cancellation or adjustment of the limited scope of indications of carbetocin, somatostatin and other products, the promotion and academic promotion of new products (enkephalin and carbetocin) can be expected to make a continuous improvement and high growth rate in domestic polypeptide preparation business.

The annual income is 163 million, of which the equipment income is 99 million (- 42.68%), and the drug combination packaging income is 64 million (- 7.95%). The equipment category has declined a lot, and we still need to wait for the synergy effect of the heavyweight varieties in the product pipeline to promote its further growth. It is expected to contribute about 90 million of profits in the first three quarters of the century.

The company is in good condition: the net cash flow of operation is growing well, and the accounts receivable is lower than that of China report. The overall trend is good.

In terms of financial indicators, the company's sales expense rate was 39.33%, which was higher than that of the same period last year (26.72%). The increase was mainly due to the fact that the company changed its marketing model and increased the academic promotion of new products. The rate of management expenses is 13.21%, which is lower than that of the same period last year (15.49%). Management expenses are well controlled. On the one hand, equity incentive amortization has decreased compared with last year, on the other hand, the labor wages of raw materials and drugs have been reduced, and the overall wages and welfare expenses have been reduced. The company's comprehensive gross profit margin is 86.13%, up 4.93pp from last year (81.2%), benefiting from the rapid growth of high gross margin overseas business.

2. The core barrier of the company will gradually show its competitive advantage, and the follow-up echelon will be rich.

The company's core competitiveness lies in its ten-year-long focus and strong R & D capability in the field of peptides. Investment in R & D in the first three quarters was 55.657 million yuan, an increase of 9.50% over the same period last year. The company's early R & D product layout after years of deposition, has been close to the harvest season.

The domestic side will benefit from policies such as injection consistency evaluation and priority approval in the future. As a leading enterprise of polypeptide drugs in China, the company has one of the largest varieties of polypeptide drugs in China. at present, it has 12 polypeptide drugs, 9 new drug certificates and 17 clinical approvals.

The company's products are of excellent quality and will benefit from the injection consistency evaluation policy in the future, and the competitiveness of the existing varieties will be further enhanced.

In the research product line, Lilarutide and Tipapeptide have been approved clinically according to the generic declaration of six types of chemical drugs, which represents the approval of CFDA for the declaration of chemical drugs, which is of great significance to Hanyu. The declaration of biological generic drugs needs to be done in long-term clinical practice. If the declaration is made according to the ANDA of chemical drugs, in theory, as long as the most basic equivalent clinical verification is done, the time will be greatly shortened.

Xiqu Ruike has entered the priority examination and approval, and other high-quality varieties in the research product line are also expected to enter the priority approval.

3. Overseas waiting for the approval of the two major varieties of Gradere and Lilaru peptide.

Overseas, based on Hanyu, has conquered the technologically difficult chemical synthesis of peptides such as Lilaru peptide and Gradere, which has formed a brand effect and is expected to continue to exceed expectations in the future.

FDA recommends that peptides accelerate progress according to ANDA declaration. Hanyu is expected to benefit: the latest FDA guidelines recommend that synthetic peptide drugs can be declared in accordance with ANDA. In the latest guide "ANDAs for certain highly purified synthetic peptide drugproducts that refer to listed drugs of rDNA origin" issued on October 2, 2017, it is recommended that liralutide, glucagon, nesiritide, triphatide and tedururu peptide can be declared in accordance with ANDA, and specific technical requirements are put forward. This guide is of great significance to Hanyu. FDA's recommendation to declare according to ANDA means that the approval of Lilaluptide from downstream customers of Hanyu is expected to be accelerated, and the release of raw materials can be expected.

Lilaru peptide API is about to enter the release period: the company's Lilaluptide API products have broken through the impurity difficulties one by one after long-term process development and quality research, the production line has passed the certification of FDA and EU, has a stable quality and reliable quality management system, has obvious competitive advantages in the international market, and maintains stable cooperation with major generic drug companies. The Lilarutide patent expires in 2017 in China and will expire in the United States and the European Union in 2022. During the golden period of Lilaru peptide imitation pharmaceutical declaration, the demand of international pharmaceutical manufacturers for Lilaru peptide API will gradually increase with the advance of the declaration work.

The company will submit Glatere's ANDA as soon as possible to compete for the $3.8 billion market. At present, only two companies, Sandoz and Mylan, have approved generic drugs on the market.

Enkephalin ANDA is expected to be approved: Hanyu Pharmaceutical's first overseas ANDA, a milestone of great significance.

Conclusion:

The company has been ploughing the field of polypeptides for many years, the embryonic form of the internationalization of polypeptides has emerged, the domestic preparation has grown steadily, the mature management has been improved, and the export of APIs and preparations is expected to break out in the future. Equity incentive will outline a bright prospect for the company in the next three years. It is estimated that the net profit of homing from 2018 to 2020 is 425 million yuan, 575 million yuan and 824 million yuan respectively, with a corresponding growth rate of 28.85%, 35.24%, 43.42%, 0.45,0.61,0.88 yuan, respectively, and the corresponding PE is 28x, 21x, 15x, respectively. We are optimistic about the long-term development of the company and maintain the "recommended" rating.

Risk Tips:

Overseas API business is lower than expected, enkephalin ANDA is lower than expected, and impairment of mature goodwill