Regulatory risk raises uncertainty
Recently, the company's share price has fallen sharply, taking into account the high proportion of pledge of the controlling shareholder Kangmei Industries, the company has the risk of passive reduction by the controlling shareholder. At the same time, the CSRC has filed a case against the company for investigation, but there has been no progress at present.
We maintain our previous profit forecast for the year 2018-20. The estimated net profit for 2018-20 is RMB 49.7max 5.998 billion, and that of EPS 1.00 is 1.20, 1.40, an increase of 21%, 20% and 16% over the same period last year. However, considering the market's expectations of the economic downturn and potential regulatory risks, the rating was downgraded to "neutral". At the same time, in view of the recent regulatory risks facing the company, we will stop tracking coverage of the company, and we may choose the opportunity to cover again after the fundamentals of the company are clear.
There is uncertainty in equity pledge and supervision
The company announced that as of November 29, 2018, the controlling shareholder Camry Industries held 32.91% of the shares in the company, of which 99.53% was in a state of pledge. The company's share price has fallen by more than 60% since October 12, 2018, and the company faces the risk of passive reduction by its controlling shareholders. At the same time, the company announced that on December 28, 2018, the CSRC decided to file a case against the company for investigation. Based on the company's "suspected illegal disclosure of information", there has been no substantial progress at present.
The operation ran smoothly in the fourth quarter.
According to the Strategic Cooperation Agreement, we believe that the company's operation in the fourth quarter is stable: 1) Wisdom Pharmacy: 11 medical institutions newly launched by 4Q18 in Guizhou, the number of access medical institutions in Chongqing expanded from 25 in 3Q18 to 33 in 4Q18, and the number of access medical institutions in Yunnan expanded from 53 in 3Q18 to 70 in 4Q18. (2) Pharmaceutical equipment trade: Puning, Guangdong supplies drug equipment consumables and 4Q18 for 30 medical institutions, the supply of 4Q18 is about 50 million yuan; 3) cultivation of traditional Chinese medicine: promoting the precise poverty alleviation work of traditional Chinese medicine planting in Yunnan, covering poor households from 2500 households in 3Q18 to 5000 households in 4Q18.
Pay attention to the promotion and landing of investment projects
As its business is different from that of most listed Chinese medicine companies (proprietary Chinese medicine industry), the company has explored the business ecology suitable for Chinese medicine enterprises, that is, the wisdom pharmacy centered on prepared slices, the industry of Chinese herbal medicines explored upstream, the hospital supply chain extended from the channels of prepared slices, the government medical projects extended by Chinese herbal medicines, and sufficient funds for this strategic reserve (as of 3Q18, the monetary funds reached 37.7 billion yuan). We have observed that the company has a relatively clear investment plan for the next three years, and most of these projects begin to be carried out prudently through pilot practice, and the promotion and landing of the project deserve continuous attention.
Risk hint: passive reduction risk of controlling shareholders (high pledge rate of controlling shareholders, substantial decline in stock price may cause controlling shareholders to close their positions), regulatory risk of CSRC (CSRC files a case based on Xinpi illegal investigation, the investigation is still under way).
