Events:
The company released three quarterly results. In the first three quarters of 2018, the company achieved operating income of 2 billion yuan, an increase of 14.42% over the same period last year, and a net profit of 383 million yuan, an increase of 10.27% over the same period last year. The company forecasts a net profit of 552 million-631 million yuan for 2018, an increase of 5% over the same period last year.
With its own capital of 707 million yuan, the company will increase its capital and shares to Yunnan Plant Pharmaceutical Co., Ltd. (referred to as Yunzhi Pharmaceutical Co., Ltd.).
Event comments:
The performance is in line with expectations and the profit quality is improved. As the national leader of Miao medicine, the company ploughs the market of Miao medicine, holds 17 varieties of Miao medicine authorized by invention patent, and has a strong sales and R & D team; at the same time, the company has set up specialized hospitals for diabetes in Guiyang, Chengdu and Changsha. Pharmaceutical linkage model to promote drug sales and brand building. 2018Q3 continues to maintain rapid business growth, with revenue of 2 billion yuan (year-on-year + 14.42%) and net profit of 383 million yuan (year-on-year + 10.27%), in line with our expectations. In addition, 2018Q3 achieved a deduction of 382 million yuan in non-net profit, an increase of 16.17% over the same period last year, which was 5.9 pct higher than the growth rate of home net profit, reflecting the improvement of the company's profit quality.
Strategically invest in Yunzhi Pharmaceutical Industry, integrate southwest medical resources, and promote the coordinated development of ethnic pharmaceutical industry. After the completion of the capital increase and share expansion of Yunzhi Pharmaceutical Co., Ltd., the company will hold 40% of its shares to become the second largest shareholder, which will contribute to: 1) resource integration at the business level, mutual benefit and win-win results. Yunzhi Pharmaceutical Co., Ltd. has a total of 443 drug approvals and 23 dosage forms, including 7 national exclusive varieties, covering cardio-cerebrovascular, nervous, respiratory, digestive, oncology, gynaecology, ophthalmology and other treatment fields. Yunzhi Pharmaceutical's rich variety of dosage form resources superimposes the company's mature sales system and channels, which is expected to greatly enhance the market competitiveness and profitability of both sides. 2) complete the joint-stock system transformation and promote the listing process of Yunzhi Pharmaceutical Industry. Yunzhi Pharmaceutical Co., Ltd. is an established provincial state-owned enterprise with a history of drug R & D, production and management for more than 60 years. Its controlling shareholder is Yunnan Industrial Investment holding Group Co., Ltd. (formerly Yunnan State-owned assets Management Co., Ltd.). By December 31, 2017, Yunzhi Pharmaceutical Co., Ltd. had total assets of 1.786 billion yuan, revenue of 466 million yuan and net profit of 79.5807 million yuan. According to the Yunnan Biopharmaceutical and Great Health Industry Development Plan (2016-2020) and the three-year Action Plan (2016Muk 2018) issued in January 2017, Yunnan Province focuses on supporting more than 20 enterprises, including Yunzhi Pharmaceutical Industry, to promote standardized restructuring and list on the stock market as soon as possible. After the completion of the mixed reform, with the help of the company's rich experience in capital market operation, the listing process of Yunzhi Pharmaceutical Industry is expected to be accelerated.
Investment advice:
Due to the company's increase in capital and shares of Yunzhi Pharmaceutical Industry, we have raised the company's profit forecast for 2019 and 2020. It is estimated that the net profit from 2018 to 2020 will be raised from 602 million yuan, 691 million yuan and 800 million yuan to 602 million yuan, 731 million yuan and 846 million yuan, and EPS from 0.43,0.49,0.57 yuan to 0.43,0.52,0.60 yuan. The current stock price corresponds to 19 times, 16 times and 13 times of PE. Considering the significant synergistic effect between the company and Yunzhi Pharmaceutical Industry; the stable growth of key varieties and the rapid release of granule products; Tangning Tongluo capsule market potential and smooth cooperation with a number of hospitals; the new drug Puilasta mesylate clinical trial application was accepted by CDE, and we maintain its "buy" investment rating.
Risk Tips:
Product price reduction; focus on product research and development results are lower than expected; pledge equity unwinding risk; joint venture integration is not as expected.