Key points of investment
Sales growth has slowed and profit margins have improved markedly. The company's total revenue in 2018 was 1,844 billion yuan, an increase of 11.3% over the previous year. The growth rate slowed down. The main reason was the slowdown in Yulin Pharmaceutical's growth. The gross margin reached 75.1%, an increase of 1.1 ppts over the previous period, mainly due to changes in product structure. Thanks to good management level and cost control, the company's sales expenses ratio decreased by 2 ppts year on year, and the management expenses rate decreased 0.3 ppts year on year; the R&D expenses rate was 3.7%, an increase of 1.0 ppts, an increase of 1.0 ppts, and the financial expenses rate was 1.5%, an increase of 0.6 ppts. Guimu's net profit was 465 million yuan, an increase of 17.4% over the same period last year, and Guimu's net interest rate was 25.2%, an increase of 1.3 ppts over the same period last year. A dividend of HK$0.2 per share is paid.
Operation capacity was further improved: the company strengthened the management of accounts receivable, with a year-end balance of 864 million yuan, a decrease of 11.0% compared to the balance at the end of 2017. The number of turnaround days decreased from 213 days at the end of 2017 to 171 days at the end of 2018. The net inflow of operating cash flow was 754 million yuan, an increase of 199.1% over the same period. Steady and abundant cash flow increased the company's safety margin.
Make every effort to build a “1+6” product line and develop comprehensively with nephrology as the flagship. In terms of its core product, urea cleanser, the company obtained the Hong Kong market entry qualification in 2018, and is expected to be centered in Hong Kong and further spread to Southeast Asia. In addition, the company built the “Kangson Medical” big data platform to accumulate more evidence-based medical evidence for products and consolidate the academic foundation. In other sectors: The company signed a strategic cooperation agreement with South China University of Technology to build the “Kangchen-Huagong Hospital Imaging Research Center” and establish a joint R&D and results sharing mechanism. Iron dextrose anhydride entered the national basic drug catalogue in 2018 and is the only oral liquid form of third-generation iron. The overall relocation project in Yulin progressed steadily, and the first phase of the new plant construction project was successfully completed, and is expected to accelerate in 2019.
Our opinion: According to Wind's consistent forecast, the company's stock price on March 22, 2019 corresponds to 8.27 times PE in 2019, which is in a historically low range (according to Wind PE Band, historical PE is between 7.4 and 19.4). 19PEG is 0.57, which has a certain margin of safety, and the valuation is attractive. Considering the company's good cash flow, product uniqueness, and product potential under development, we think the company is worth paying attention to.
Risk warning: The recovery in Yulin's growth rate fell short of expectations, and the pressure on hospitals to control fees exceeded expectations
