One of the "four famous shops" in the Qing Dynasty, the gene of fine Chinese medicine is pure.
Guangyuyuan has a long history, which has been more than 470 years ago (earlier than Tongrentang). It is one of the oldest traditional Chinese medicine enterprises and pharmaceutical brands in China, together with Beijing Tongrentang, Hangzhou Hu Qingyu Tang and Guangzhou Chen Liji as "the four famous shops of the Qing Dynasty". The company has a total of 104 kinds of traditional Chinese medicine and unique processing technology, 6 exclusive varieties, 2 national secret varieties (Guilingji and Dingkundan), 3 national intangible cultural heritage varieties (Guilingji, Dingkundan, Angong Niuhuang pills).
Various factors restricting the development of the company have been eliminated, and the time-honored brand of fine traditional Chinese medicine has taken on a new look.
The historical debt risk of Dongsheng Group, a major shareholder, has been gradually resolved, the shares of the company have been unsecured and unfrozen one after another, the debt ratio has dropped to less than 50%, and the risk of uncertainty in the performance of major shareholders has been resolved. The company successfully issued non-public shares in 2015 and 2016, with a net financing of 1.45 billion yuan in cash, the resumption of the financing function of the capital market, and the gradual breaking of the capital shackles restricting the company's development, and the company ushered in a good opportunity for various business activities to land. In addition, after the acquisition of 40% of the minority interests of Shanxi Guangyuyuan, the main subsidiary, the company's shareholding increased to 95%, greatly consolidating the main business of listed companies, and straightening out the multi-interest relationship with Dongsheng Group and Shanxi Guangyuyuan. The elimination of various factors restricting the development of the company, high-quality state-owned pharmaceutical enterprises, in the event of changes.
Guilingji, Dingkundan and Angong Niuhuang pills, the three core varieties are stable in quantity and price.
The core products Guilingji, Dingkundan and Angong Niuhuang pills have been selected into the national intangible cultural heritage list, and Guilingji and Dingkundan are two national secret recipes. The main achievements of the three core products contributing companies, from 2016 to 2018, Guilingji (excluding Guilingji wine), Dingkundan (including big honey pills, watertight pills and oral liquid, etc.), Angong Niuhuang pills contributed a total of 711 million yuan, 10.51 yuan and 1.39 billion yuan in revenue, accounting for 76.0%, 89.9% and 85.9% of the company's total revenue, respectively. In 2018, the revenue of Dingkundan series was 549 million yuan, and that of Guilingji series was 526 million yuan. Dingkundan's revenue surpassed Guilingji and became the largest subdivision of the company's revenue. In terms of price, high-quality traditional Chinese medicine is limited by the supply of natural raw materials, positioning high-end consumption, and the price has risen steadily in recent years. Although traditional Chinese medicine uses hospitals and pharmacies as sales channels, the price is mainly determined by tendering and bidding, and the winning price is basically stable. In the environment of controlling medical insurance fees and reducing drug prices, it reflects the characteristics of good policy immunity.
Production and sales lay a foundation for rapid growth in the next few years.
Production: the first is to tap the potential and expand the capacity of the old factories, and the other is to actively promote the construction project of the traditional Chinese Medicine Industrial Park to fundamentally solve the problem of tight production capacity. The traditional Chinese medicine industry project has passed the GMP certification and reached the intended use state. after reaching production, the production capacity of each dosage form production line of the company has increased significantly, laying a solid foundation for the future product marketing and sales scale expansion.
Marketing: the marketing strategy is guided by traditional Chinese medicine culture, academic as the foundation, around the "academic + brand" two-wheel drive route, perennial cooperation with Chinese Medical Association and other institutions, and participate in various national and provincial academic conferences to improve the academic recognition of the products. Strengthen hospital development in channel construction, vigorously develop OTC business, and continue to establish a good cooperative relationship with domestic well-known pharmaceutical circulation enterprises, which increased by 3 times and 6.5 times respectively in 2018 compared with 2015, strongly supporting the company's sustained growth in business performance in recent years. We believe that the company still has a lot of room for improvement in channel construction. At the end of 2018, the coverage rate of hospitals with grade II or above of the company's products was just over half (56.6%), and the terminal coverage rate of drugstores was only about 33%. On the sales team, Shanxi Guangyuyuan's marketing team has a wealth of industry experience and successful marketing cases, the company's sales team continues to expand, 2018 sales staff 1925, accounting for 61.8% of the total staff.
Profit forecast and valuation
We forecast that from 2019 to 2021, the operating income of the company will be 2.52 trillion yuan, the net profit of its parent will be 4.74 million yuan, and the total share capital of the company will be 353 million shares, corresponding to 1.34 pound EPS per share, 1.72 pound per share, and 11.8 times the current price of 19.0 shock PE.
At present, the fine Chinese medicine subdivision industry PE (TTM) is 28.4 times, PEG (next three years net profit year compound) 2.0, Guangyuyuan PE (TTM) valuation is below the median of the industry, but the company's performance continues to grow rapidly in the next few years, PEG (the next three years net profit year compound) industry is the lowest, conservatively giving 2019 PEG valuation 1.1 times, corresponding to PE (2019E) 29.5 times, target price 39.53 yuan, given "buy" rating.
Risk hint
The risk of large fluctuation in the supply and price of expensive and fine traditional Chinese medicine; the risk of bad debts in accounts receivable; the higher-than-expected price reduction of drugs controlled by medical insurance; the channel expansion of hospitals and pharmacies is lower than expected.