Incident: The company's operating income and net profit after deducting non-net profit in 2018 were about 1.56 billion yuan and 043 million yuan respectively, with year-on-year growth rates of about 21.9% and -8.5% respectively; 2019Q1 operating income and net profit after deducting non-net profit were about 310 million yuan and 19 million yuan respectively, and the year-on-year growth rates were about -4.3% and 11.4% respectively.
Revenue growth is in line with expectations, with specialty drugs as the core focus. The company's revenue in 2018 was about 1.56 billion yuan, an increase of about 21.9% over the previous year. Among them, specialty drug revenue was about 930 million yuan, a year-on-year growth rate of about 54.7%. Due to the company's increased bidding and hospitalization efforts, the revenue growth rate of esomeprazole is about 62%, and it is estimated that its revenue scale may exceed 400 million yuan; the market advantage of nanocarbon suspension injections in the thyroid sector is obvious. It is estimated that its revenue scale may exceed 350 million yuan, a growth rate of more than 40%; Hunan Kangyuan, a major infusion sector, has revenue of about 150 million yuan, a year-on-year growth rate of about 43%. The company's non-net profit deducted in 2018 was about 43 million yuan, a year-on-year growth rate of about -8.5%. The detailed analysis is as follows: 1) The company's gross margin was about 61%, an increase of about 12 percentage points over the previous year. The main reason was the increase in the proportion of high-margin specialty drugs and adjustments in the sales model of large infusions and anti-infective drugs; 2) The expenses for the period were about 53.4%, an increase of about 10 percentage points over the previous year. Among them, sales expenses were about 600 million yuan, an increase of about 76.5% over the previous year; due to changes in sales models and increased investment in market development; in addition, due to the increase in the scale of short-term loans, the company's financial expenses were about 50 million yuan, an increase of about 43% over the previous year; 3) The return profit in 2018 was about 98 million yuan, lower than the previous performance report data, due to impairment of overseas investment projects. Looking at a single quarter, 2019Q1's operating income and net profit after deducting non-net profit were about 310 million yuan and 119 million yuan respectively. The year-on-year growth rates were about -4.3% and 11.4% respectively, in line with the scope of the previous performance forecast.
Among them, the revenue growth rate for specialty specialty drugs was about 6.8%, and the growth rate of major infusion revenue was about 34.6% due to changes in sales models. Compared with the 2018 level, the 2019Q1 sales expenses ratio was basically the same, and the management R&D expenses and financial expenses ratio increased, due to seasonal factors. Tadalafil tablets recently represented by the company did not achieve sales in 2019Q1. It is expected that 2019Q2 will contribute to performance and show a quarterly upward trend.
Xin Weige began selling goods and is optimistic about the company's performance growth. 1) Tadalafil (Xin Wei Ge) is a major strain for the company's new agent. The drug was developed by Lilly and is indicated for erectile dysfunction (ED). It was listed in China in 2005, and Changchun Haiyue completed its first domestic model in 2019, and it also granted sales agency rights in China to Laimei. Tadalafil has the advantages of being effective for a long time and is not restricted by alcohol or diet. The target product, Baiyunshan Jingo, sold more than 47 million capsules in 2018, and the market space is huge. Xin Weige began selling products in April. It is conservatively estimated that the revenue from Dalafil in 2019 may increase by more than 200 million yuan. If it cooperates with new retail platforms such as Tmall and Jingdong, the revenue will exceed expectations; 2) Nano carbon suspension injection (cannalin) is the only approved lymphatic tracer in China, and it has good lymphatic tendencies. Currently, canalin is widely used in the field of thyroid cancer. A great deal of academic work has been carried out, and it is highly recognized by experts. Canarine is not covered by medical insurance, but it can avoid surgical risks. There is strong willingness to use it clinically, and there is little pressure to reduce prices. It has already been used in fields such as thyroid cancer, breast cancer, stomach cancer, bowel cancer, etc. In the future, it may be extended to all solid tumors, and the prospects are promising. Revenue is expected to grow rapidly as the penetration rate increases and indications expand; 3) Esomeprazole enteric capsules (remexu) are the exclusive imitation of 4 new drugs in China. The oral dosage form is treated as having passed the consistency evaluation. The competitive pattern is good, and the winning bid price remains stable at 65 yuan/box or above. As the provinces continue to advance, and the policy restrictions on the use of PPI injections will also favor oral administration, it is estimated that revenue will still grow rapidly in 2019; 4) The subsidiary Hunan Kangyuan lost money or narrowed. Hunan Kangyuan lost about 28 million yuan in 2018 and will continue to build a high-end infusion base. The focus of 2019 is the listing and sale of drug mixers. If the planned sales plan can be successfully implemented, Hunan Kangyuan is expected to reduce losses.
Profit forecasts and ratings. We expect the EPS in 2019-2021 to be 0.19 yuan, 0.30 yuan, and 0.46 yuan respectively. The corresponding valuations will be about 44 times, 27 times, and 18 times, respectively, maintaining the “buy” rating.
Risk warning: Product sales may fall short of expectations, risk of drug price reduction, risk of increased subsidiary losses, and other unpredictable risks.