Incidents:
Hyundai Pharmaceutical released a report for the third quarter of 2018. The company achieved operating income of 8.485 billion yuan in the first three quarters of 2018, an increase of 28.82% over the previous year; net profit attributable to shareholders of listed companies was 577 million yuan, an increase of 29.3% over the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 539 million yuan, an increase of 35.80% over the previous year, achieving EPS of 0.52 yuan.
2018Q3 achieved operating income of 2,631 million yuan, an increase of 31.12% over the previous year; net profit attributable to shareholders of listed companies was 167 million yuan, an increase of 87.79% over the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 149 million yuan, an increase of 145.57% over the previous year, achieving EPS of 0.16 yuan.
Opinions:
1. The performance of the third quarter report exceeded expectations, and the company's various operations are gradually on the right track
The company's revenue for the first three quarters was 8.485 billion yuan, an increase of 28.82% over the previous year, and the net profit of the mother was 577 million yuan, a growth rate of 29.3%. The revenue growth rate exceeded expectations by more than 25%, and the business situation was gradually on the right track.
From a quarterly perspective, Q1-Q3 revenue was 3.109 million, 2,744 million, and 2,631 million respectively. The growth rates were 31.36%, 24.02%, and 31.12% respectively. The results were 173 million, 237 million, and 167 million respectively. The growth rates were 3.93%, 14.76%, and 59.74% respectively. 2017 was the first year after the company's restructuring. The company's results for the four quarters of 2017 were 159 million, 198 million, 89 million, 70 million, respectively. The base for the first and second quarters was too high, and the third and fourth quarters were seriously dragged down by subsidiaries and expenses. As a result, although the results for the first three quarters of this year did not fluctuate much, the growth rate fluctuated greatly. In the future, this situation will gradually disappear along with the stabilization of the business situation.
In addition to the impact of the two-vote system on the company's high revenue growth rate, there are also the following reasons:
The pharmaceutical sector grew rapidly, and the first batch of cefuroxime was released rapidly after passing the consistency evaluation. Other key varieties, including nifedipine and methylprednisolone, all had obvious rapid growth.
The API sector, Wichida, is operating normally, the price of 7ACA is relatively good, and the 6APA business is gradually returning to normal, and is being upgraded to amoxicillin (grassroots research results).
After the restructuring of the division, the overall layout of the company will continue to drive revenue side growth in the future: the company's marketing is divided into 5 major areas, and after classification, enterprises share sales channels. The five major divisions of daily internal management have the five vice presidents as specific leaders of the five sectors. Anti-infective, endocrine, cardiovascular, oncological, API, anesthetic components. Each sector has a leading enterprise, and leading companies bring subsidiaries to make the overall marketing layout of each sector.
Similar (markets, varieties) are promoted collaboratively. The individual performance of each sector manager is linked to the overall performance of the sector.
The company's operating cash flow was good in the first three quarters, which we judge as a positive sign that operations are gradually on the right track. The main reason is that the company continues to strengthen accounts receivable credit management and sales repayment assessment, and the sales repayment rate continues to increase; the company has strengthened operating cycle control through multiple channels, misallocating payment periods, and achieving the control goals of increasing net cash flow from operating activities and reducing comprehensive capital costs.
Looking at the situation of major subsidiaries, we speculate that the interim reporting trend will continue
On the positive side: Haimen Zhonglian lost significantly; Wichida's business situation improved markedly, making a profit of 120 million in the first half of the year (having completed 60% of the annual performance commitment of 199 million); Hasson (oral formulations; Tianmasin, itraconazole) had a net profit of 309.766 million yuan, which also achieved rapid growth of close to 30%; Sinopharm Zhijun's growth rate was stable, with a net profit of 125 million yuan, meeting half of the performance promise; Pingshan Pharmaceutical's net profit was 3153.77, up more than half from last year (3.4337 million yuan), fulfilling its performance promise.
However, on the other hand, the performance of Sinopharm Rongsheng (a hormone-based freeze-dried powder injection) declined; Qinghai Pharmaceutical also had a certain gap between its performance promises; and Sinopharm's performance declined a lot.
The company started with Qinghai Pharmaceutical and gradually divested less synergistic businesses. The company announced in October that it plans to transfer 45.16% of the shares of the participating company Qinghai Pharmaceutical Factory through a public listing. The proposed listing reserve price is 424 million yuan. This is a decision after judging the collaborative strategic trend in the business sector. If the transaction is completed within 2018, it will have an impact on the company's 2018 operating results. According to the company's preliminary estimates, if the transaction is carried out at a listing reserve price of 424 million yuan, it is estimated that the consolidated statement level company will increase investment income by about 255 million yuan and increase net profit attributable to owners of the parent company by about 135 million yuan.
In terms of financial indicators, the company's sales expense ratio in the first three quarters was 27.75%. Compared with last year (13.54%), it grew faster than the revenue growth rate. There were some reasons for the low turnover and high opening. Furthermore, due to the accelerated growth rate of the pharmaceutical sector, the company increased its product promotion efforts, and terminal channel expenses increased; the management expense ratio was 8.68%, down 1.07pp from 9.79% in the same period last year. The company's cost reduction and efficiency effects are still reflected. The company's financial expenses are basically stable, with a comprehensive gross profit margin of 49.94%, a sharp increase compared to 39.32% last year. There is an impact of the two-vote system, but it is mainly due to the rapid growth in the pharmaceutical sector that drives the company's overall gross profit margin, and the company's gross margin is expected to continue to rise in the future.
2. Looking ahead to 2018, focus on the consistency evaluation of the pharmaceutical sector and the release of new medical insurance varieties and subsequent changes in the API sector
2017 was the first year after the company was restructured, and the pressure was severe due to the influence of APIs and the restructuring company's failure to meet performance promises. However, in the long run, the company is positioned as a platform for the Sinopharm industry. The company has many high-quality varieties, new medical insurance varieties, and consistency evaluation varieties, and there is huge room for future improvement. At the same time, the API sector fell seriously short of expectations in 2017. Continued attention should be paid to the production and operation of the company's API sector in the future.
The company's future growth logic is as follows:
In terms of consistency evaluation: By the end of the reporting period, 76 compliance evaluations had been carried out (of which 37 were in the “289 catalogue” and 39 were not in the “289 catalogue”), involving 25 large varieties and 16 potential varieties. Following cefuroxime tablets (0.25g), Sinopharm also passed the consistency evaluation of generic drug quality and efficacy, opening up a new situation for market sales and competition for this variety.
The launch of new production capacity further strengthens the position of a “chemical platform”: the project investment amount is 1.45 billion, with a production capacity of 5.5 billion tablets/tablets/bags/bottles. It is expected to contribute close to 3 billion dollars in revenue in the future, providing a guarantee for continued growth.
Sorting out and integrating existing varieties: After the restructuring is completed, the company has 21 products worth over 100 million yuan. Through resource integration, future resources will be allocated more efficiently, the disorderly product layout scattered across various factories will be rationally planned and integrated, and Hyundai Pharmaceuticals' position in the first-level echelon in key areas will be more stable.
Flexibility of the medical insurance catalogue: The company and its subsidiaries include a number of new products in the medical insurance catalogue. New products that have entered the medical insurance catalogue will have a positive impact on the company. In particular, exclusive products such as dextromethorphan sustained-release suspension, minalapron tablets, and golden leaf detoxification particles are expected to be released in the future and make a positive contribution to the company's profits.
APIs: Haimen is expected to reverse losses. 6-APA, 7-ACA, and penicillin industrial salt ingredients contribute flexibility.
In terms of outreach: As a chemical drug platform, the company's outreach expectations are still strong.
Conclusions:
As a chemical platform owned by Sinopharm, the company's operating efficiency is expected to continue to improve. Not considering Qinghai Pharmaceutical's equity transfer income for the time being, net profit attributable to the mother in 2018-2020 is estimated to be 713 million yuan, 886 million yuan, and 1,050 million yuan respectively. The corresponding growth rates are 38.24%, 24.24%, and 18.47% respectively. EPS is 0.68 yuan, 0.84 yuan, and 0.99 yuan respectively, and the corresponding PE is 13X, 11X, and 9X respectively. Maintain a “Highly Recommended” rating.
Risk warning:
The restructuring and integration fell short of expectations, and injections and antibiotics were limited
