Events:
1) LLP "ALTACO-XXI", a partner of Stemedica under Jiuzhitang in Kazakhstan, declared that the treatment of acute myocardial infarction with human bone marrow mesenchymal stem cells produced by Stemedica was approved by the Ministry of Health of Kazakhstan. At the same time, the company's Meike Company and ALTACO-XXI signed a "Cooperation Agreement on the Co-Construction of Jiuzhitang-ALTACO Stem Cell International Medical Center" in Horgos China-Kazakhstan Cooperation Zone to establish "Jiuzhitang-ALTACO Stem Cell International Medical Center".
② issued a performance forecast that it made a profit of 320 million yuan to 370 million yuan in 2018, down 48.71% Mel 55.64% from the same period last year. Stemedica stem cell results are outstanding, stem cell myocardial infarction therapy was approved by the Ministry of Health of Kazakhstan in May 2018, the company's investment fund invested US $70m in the US Stemedica in the form of capital increase, and held a 51 per cent stake after the completion of the transaction. Stemedica is engaged in the research, development, production and clinical work of allogeneic adult stem cells and other products. Its clinical research on Alzheimer's disease is the first clinical study approved in the United States to use stem cells to treat the disease. Recently, Stemedica's partner in Kazakhstan, LLP "ALTACO-XXI", has reported that the treatment of acute myocardial infarction using human bone marrow mesenchymal stem cells produced by Stemedica has been approved by the Ministry of Health of Kazakhstan. Stemedica has achieved large-scale expansion of stem cells, leading the industry to achieve key technological breakthroughs.
Set up an international stem cell medical center, and Chinese patients can receive treatment with passports.
Jiuzhitang Meike and ALTACO-XXI jointly set up "Jiuzhitang-ALTACO Stem Cell International Medical Center" on the Kazakh side of Horgos China-Kazakhstan Free Trade Zone. ALTACO-XXI has Stemedica's exclusive cell supply agreement, which is responsible for the day-to-day operation and medical management of the medical center, which is assisted by Meike. The cooperation stipulates that any patient holding a Chinese passport (including Hong Kong, Macao and Taiwan) to the medical center for treatment must be recommended by Jiuzhitang Meike. After Meike and Beijing Tiantan Hospital jointly built a research base in November last year to promote preclinical stem cell research, the company's stem cell business is further promoted, and the establishment of this medical center is expected to bring actual performance increment for the company's stem cell business.
Affected by medical insurance control fees and other factors, the company's short-term performance is under pressure, re-evaluation is expected to re-prove the product advantages.
Due to the restrictions of the new version of the health insurance catalogue and auxiliary drug catalogue, medical insurance control fees, "two-vote system" and other factors, the company's sales of prescription drugs (especially traditional Chinese medicine injection Shuxuetong) have declined, resulting in pressure on the company's performance. In the first three quarters of 2018, the company achieved operating income of 2.548 billion yuan, down 7.38% from the same period last year; and home net profit of 334 million yuan, down 35.08% from the same period last year. We believe that Shuxuetong shows the advantages of good safety and outstanding efficacy in many third-party studies. With the development of injection re-evaluation in the future, Shuxuetong is expected to stand out and lead to a rebound in performance.
Investment advice: as the company's injection and other products are greatly affected by medical insurance fees and other factors in the short term, we have lowered the company's profit forecast. It is estimated that the company's net profit in 2018-20 will be 3.51 million yuan and the corresponding EPS will be 0.40 million and 0.46 million yuan respectively. Considering the rapid expansion of stem cell business and the leading domestic stem cell technology, as well as the layout of new diabetes drugs and other emerging businesses, the company is valued at 25 times in 19 years, with a target price of 11.5 yuan and a "overweight" rating.
Risk hint: the competition situation in the future product market is complex, and the medical insurance control fee and re-evaluation is not as expected. On January 21, 2019, the company received a warning letter from Hunan Securities Regulatory Bureau due to the lack of information disclosure in the process of accepting Kexin Virtue.