Main points of investment

Items:

The company released a report for the first quarter of 2019, with an income of 211 million yuan, an increase of 28.73% over the same period last year, a net profit of 22.27 million yuan, an increase of 31.10% over the same period last year, and a net profit of 21.13 million yuan, up 31.26% over the same period last year. The company's performance is in line with expectations.

Peace viewpoint:

After the impact of the two-vote system was eliminated, it still maintained high growth, and Zhenjiang Red put into production to increase new profit points: 2019Q1 achieved an income of 211 million yuan, an increase of 28.73% over the same period last year, and maintained a rapid growth trend after the two-vote system was comparable. The net profit of returning to the mother was 22.27 million yuan, an increase of 31.10% over the same period last year, in line with previous expectations. 2019Q1's gross profit margin is 81.61%, which is 4.39 pp lower than that of 2018Q1. We think it is mainly due to the company's increased sales of APIs and intermediates, which has a low gross profit margin. Q1 Raw material Pharmaceutical Co., Ltd. achieved an income of 14.76 million yuan, adding a new profit growth point.

The third rate of 2019Q1 company is 67.89%, which is 2.75 pp lower than that of 2018Q1, in which the sales expense rate has decreased significantly, from 64.71% of 2018Q1 to 58.04% of 2019Q1, mainly due to the low cost of API sales.

The core variety continued to release, and lansoprazole was temporarily affected by supplier maintenance: 2019Q1's core variety Torasemi had sales of 88.51 million yuan, an increase of 38.83% over the same period last year, and sales of 6.8448 million units (equivalent to 10mg), an increase of 34.51% year-on-year and 10.68% month-on-month. In 2018, the company's sample hospitals accounted for 52.61%, and there is still much room for improvement. It is estimated that the sales of Torasemide in 2019 are expected to be close to 30 million. Among other varieties, sales of cefotiam are 31.75 million yuan, up 15.07% from the same period last year. Sales were 2.0038 million (equivalent to 0.5g), an increase of 0.82% over the same period last year. The sales of tegacycline was 9.46 million yuan, up 26.93% from the same period last year, and the sales volume was 25600, an increase of 43.05% over the same period last year. The sales of cefoxione was 7.48 million yuan, up 156.79% from the same period last year, and the sales volume was 95100, an increase of 203.64% over the same period last year. Affected by the maintenance of matching injection water suppliers, sales of lansoprazole declined, with sales of 12.28 million yuan, down 27.01% from the same period last year, and 528600 units, down 24.44% from the same period last year.

The company's R & D expenses have increased rapidly, and the subsequent landing of high-end generic drugs is expected: 2019Q1's R & D expenses are 11.88 million yuan, an increase of 240.34% over the same period last year, and R & D investment continues to increase. Among the varieties studied, randilol and vinpocetine are expected to be approved in 2019. The supplementary application for the consistency evaluation of amlodipine and the new category 4 listing applications for Tegrilol are under review. Livashaban submitted an application for registration. Dabiga group ester and apisaban are expected to complete the pharmaceutical evaluation and carry out BE in the first half of 2019. Others, such as tenofovir, Liglitine, Topatib, Tovaptan and so on, are progressing smoothly. In the future, the company is expected to maintain the pace of landing 2-3 high-end generics every year.

Profit forecast and investment rating: the company's core products continue to expand rapidly and are expected to benefit from a new round of health insurance adjustment, high-end generic drugs are expected to hit the ground one after another, and APIs add new profit growth points. NMS launched round A financing, rich in R & D pipelines. We maintain the company's forecast of EPS of 0.94,1.19,1.48 yuan respectively from 2019 to 2021, and the current stock price is 32.7 times PE in 2019, maintaining the "recommended" rating.

Risk tips: 1) the scope of volume procurement is larger than expected: the winning varieties of volume procurement for the first time are landing one after another, and there is a high probability that the second pilot will be carried out in 2019, and the variety and pilot scope of the second volume procurement will be greatly expanded, involving many varieties of the company, it will have a negative impact on the company. 2) R & D progress is not as expected: at present, the company has a number of R & D projects in the registration process, of which vinpocetine and randilol are expected to be approved in the near future, but drug review may be delayed due to uncertain factors such as policy. 3) merger and acquisition integration is not as expected: at present, NMS has launched the first round of financing to support projects under research, but there are still a large number of funding needs in the follow-up, if it can not be solved well, it will affect the integration and cooperation between the company and NMS.