Company dynamic events

The company released its annual report for 2018.

Comments on matters

The performance is in line with expectations, and the business in Beijing has a smooth transition.

The company achieved operating income of 17.96 billion yuan in 2018, an increase of 26.13% over the same period last year, of which 2018Q4 realized operating income of 4.796 billion yuan, an increase of 19.39% over the same period last year. From a regional point of view, the company achieved business income of 8.086 billion yuan in Beijing in 2018, an increase of 10.78% over the same period last year. The company further strengthened its drug sales business in Beijing and ensured a smooth transition in the implementation of the two-vote system and the reform and adjustment of national base drugs in Beijing. Revenue growth was steady but slowed down from the same period in 2017. In other areas, business income reached 9.545 billion yuan, an increase of 37.54% over the same period last year, maintaining a trend of rapid growth.

During the period, the expense rate increased slightly compared with the same period last year.

In 2018, the company achieved a net profit of 328 million yuan, an increase of 24.27% over the same period last year, and a net profit of 324 million yuan, an increase of 22.72% over the same period last year. From a quarterly point of view, the company's 2018Q4 realized a net profit of 67 million yuan, an increase of 6.59% over the same period last year, which was lower than the growth rate of income, mainly due to factors such as the increase in the expense rate during the company period and the high base in the same period last year; the net profit was 67 million yuan, an increase of 16.34% over the same period last year.

The company's sales gross profit margin in 2018 was 9.92%, up 0.70 percentage points from the same period last year. The year-on-year growth rate of operating costs in Beijing was lower than the revenue growth rate, leading to a slight increase in the company's overall gross profit margin. The company's expense rate during 2018 was 5.68%, an increase of 0.62% over the same period last year, of which the sales expense rate was 3.50% (+ 0.33%), the sales expense rate was 1.16% (+ 0.03%), and the financial expense rate was 1.02% (+ 0.26%). The main reason for the increase in financial expense rate is the increase in short-term financing and other factors.

The outport business continues to make efforts to further expand the layout of outport business.

In 2018, the company's 16 equipment subsidiaries and one pharmaceutical subsidiary realized a total operating income of 11.408 billion yuan, an increase of 43.20% over the same period last year; an operating profit of 597 million yuan, an increase of 20.32% over the same period last year; and a net profit of 447 million yuan, an increase of 18.30% over the same period last year. Among them, Jiashi Rongjin, Jiashi Tonghan and Jiashi Merchants acquired by the company in 2017 were merged in the second half of 2017. after merging their annual results in 2018, the combined operating income and net profit were 1.497 billion yuan and 72 million yuan respectively. It is expected that the impact of performance growth caused by the above three companies' consolidated statement factors will be gradually eliminated from 2019. On the one hand, the company strengthens its management and support to pharmaceutical companies outside Beijing to promote the sustained growth of pharmaceutical business; on the other hand, two new equipment subsidiaries, including Jiashi Minyitong and Jiashi Qianrui, are added to the consolidated report range of the company's 2018H2, so as to continuously promote the national sales network of high-value consumables, strengthen business management and expand market coverage while strengthening accounts receivable and inventory management to improve business quality.

Risk hint

The risk of intensified competition in Beijing regional market; drug bidding, health insurance payment and other industry policy risks; GPO business expansion is not as expected risk; expansion outside Beijing is not as expected risk; goodwill impairment risk.

Investment suggestion

Maintain a "cautiously overweight" rating for the next six months

Combined with the 2018 annual report to adjust the company's 19,20-year EPS to 1.58,1.88 yuan, based on the closing price of 16.43 yuan on February 27th, the dynamic PE is 10.43 times and 8.75 times respectively. We believe that: 1) as a leading pharmaceutical commercial company in Beijing, taking the implementation of sunshine procurement as an opportunity, the company is expected to expand its market share and strengthen the Beijing market due to industry integration. 2) the company actively promotes the layout of outport business, and in the first half of 2018 actively promotes the national agency cooperation with Medtronic PLC and Abbott Laboratories on the involvement of consumables in the heart, strengthening the sales network and enriching product categories at the same time. In the second half of the year, two equipment subsidiaries, such as Minyitong and Jiashi Qianrui, will further improve the national layout of high-value consumables business. Maintain a "cautiously overweight" rating over the next six months.