Incident: The company's 2018 operating income and net profit after deducting non-net profit were about 13.67 billion yuan and 1.53 billion yuan respectively, with year-on-year growth rates of about -1.4% and 5.2% respectively; 2019Q1 operating income and net profit withheld non-net profit were about 2.88 billion yuan and 280 million yuan respectively, with year-on-year growth rates of about 18.6% and 68.3% respectively.
The Q1 performance exceeded market expectations, and steady growth is expected throughout the year. The company's revenue in 2018 was about 13.7 billion yuan, down 1.4% from the previous year. The revenue of its central cerebrovascular series was about 11 billion yuan, a year-on-year decrease of about 2%; the revenue of its core subsidiary Shandong Danhong (Danhong Injection) fell 25%; Shaanxi Buchang (oral preparations such as Neocenton) increased by about 1.8%; Tonghua Guhong (Guhong Injections) revenue increased by about 50%; revenue from the gynecology series was about 730 million yuan, a year-on-year decrease of about 15.4%; and the urological series revenue was about 440 million yuan, an increase of about 6.4% over the previous year. The company's non-net profit deducted in 2018 was about 1.53 billion yuan, an increase of about 5.2% over the previous year, which was about 6.5 percentage points higher than the revenue growth rate. The detailed analysis is as follows: 1) The company's gross margin was about 82.8%, an increase of about 0.4 percentage points. Labor and material costs rose slightly, but changes in the product structure led to overall stability in gross margin; 2) The company's cost ratio during the period was about 67.7%, down about 0.1 percentage points from the previous year, which was well controlled. Among them, sales expenses were about 8 billion yuan, a year-on-year decrease of about 3%, and total management R&D expenses were about 1.14 billion yuan, an increase of about 7% over the previous year. Looking at a single quarter, the company's performance exceeded market expectations. 2019Q1's operating income and net profit after deducting non-net profit were about 2.88 billion yuan and 280 million yuan respectively. The year-on-year growth rates were about 18.6% and 68.3% respectively. We judge that it is related to the company's delivery pace, and the annual profit growth rate is expected to exceed 5%.
Leading cardiovascular traditional Chinese medicine companies are speeding up innovative research and development product layout. 1) The advantages in the field of cardiovascular medicine are obvious. The company's products cover diseases such as stroke, arrhythmia, insufficient blood supply, and ischemic infarction. The core products are brain cardiotonic capsules, stabilized granules, danhong injection, guhong injection, compound brain peptidoside injection, compound triprotide injection, and ginkgo honeysuckle oral solution. Total revenue in 2018 reached 9.14 billion yuan, with steady growth in oral dosage forms; 2) Continued intensive investment in research and development, with a core layout in the field of chronic diseases. In 2018, the company continued to increase R&D investment. During this period, R&D expenses were about 480 million yuan, an increase of 4.2% over the previous year. Actively screen chemicals with clear targets and lay out advanced dosage forms of chemical drugs; in the field of biopharmaceuticals, for major diseases, long-term diseases, chronic diseases, etc., in fields such as tumors, cardiovascular and cerebrovascular, osteoporosis, etc., there are currently 10 biological products being developed, and some products have entered clinical phase II to phase III; 3) Improve the strategic layout of the health industry chain, and the company is laying out all aspects of channels, R&D, and products, including online drug purchasing platforms, diagnostic reagents and medical devices, functional imaging technology for tumors in the early stage of cancer, and image navigation for accurate cancer diagnosis and treatment technology, etc. Nurturing new profit growth point.
Profit forecasts and investment recommendations. The company's EPS in 2019-2021 is expected to be 2.26 yuan, 2.39 yuan, and 2.53 yuan respectively. The corresponding valuations are about 14 times, 13 times, and 12 times, respectively. The company's performance is growing steadily, and the R&D market is positive, covering the “increase in holdings” rating for the first time.
Risk warning: The risk that product sales may fall short of expectations; other unpredictable risks.