Incidents:
The company released its 2017 annual report: 2017 revenue was 4,516 billion yuan, an increase of 12.47% over the previous year; realized net profit of 210 million yuan, an increase of 71.42% over the previous year; EPS of 0.45 yuan per share. The dividend is 0.05 yuan per share (tax included), and 3 shares are transferred for every 10 shares.
Key points of investment:
All sectors are making concerted efforts, and revenue continues to grow.
In 2017, the company achieved revenue of 1,965 million yuan of APIs, an increase of 10.97% over the previous year, while overall API sales in 2017 were 28,800 tons, a decrease of 1.09% over the previous year, indicating that this was mainly due to rising API prices. This is consistent with Wind price data. Prices of major products such as ibuprofen and anacin and caffeine have all risen. The pharmaceutical sector achieved revenue of 1,982 million yuan in 2017, an increase of 13.42% over the previous year. Among them, the six core strategic varieties, such as Schutaide, Jiining and Baochang, achieved revenue of 199 million yuan, an increase of 33.91% over the previous year. Furthermore, “Brand General Medicine” continued to develop and achieve steady revenue growth. Pharmaceutical intermediates achieved revenue of 569 million yuan in 2017, an increase of 14.48% over the previous year. It also mainly benefited from rising product prices.
The increase in gross margin further enhances the company's profitability.
In 2017, the company's comprehensive gross margin was 28.08%, an increase of 3.14 percentage points over the previous year. Among them, APIs, pharmaceuticals and pharmaceutical intermediates increased by 2.86, 3.61, and 2.57 percentage points respectively. We think this aspect is related to the increase in prices of major products. Furthermore, it is also related to the results of the company's product technology research, mainly reflected in the formulation side. Benefiting from the continuous expansion of the company's pharmaceutical product scale and process improvements, the company's gross margin level is expected to continue to rise in the next few years. In addition, non-recurring profit and loss also further improved the company's performance. It was 141 million yuan for the full year of 2017, an increase of 20 million yuan, an increase of 95.24% over the previous year, mainly related to profit and loss from disposal of assets. In terms of period expenses, the full year of 2017 was 21.57%, an increase of 1.84 percentage points over the previous year. Among them, the sales expenses ratio, management expenses ratio, and financial expenses ratio were 11.29%, 8.52%, and 1.77% respectively, all of which increased over the previous year.
Investment in R&D has increased dramatically, and the internationalization strategy has been steadily promoted.
R&D investment for the full year of 2017 was 158 million yuan, an increase of 47.85% over the previous year, and 11 authorized patents were obtained throughout the year. Of these, 4 products, including glimepiride tablets and captopril tablets, successfully passed BE. Production approvals for two softgels, levodopa and vitamin E softgels, have been approved, and production of non-bustat will soon be completed.
On the international side, the company used international contract processing as a breakthrough to further improve the quality of pharmaceutical products. It achieved 114 million yuan in 2017, an increase of 102.4% over the previous year. In addition, the API has completed DMF registration for 13 products in 32 countries. We believe that with the continuous development of international registration work, especially the successful registration of ANDN products, it will further enhance the company's brand influence and continue to advance the company's path of internationalization.
Maintain a “Recommended” rating.
We expect the company's 2018-2020 EPS to be 0.62 yuan, 0.78 yuan and 0.97 yuan respectively, and PE 19 times in 2018. The current valuation level is slightly lower. Considering that the scale of the company's pharmaceutical business is expected to continue to grow and the level of profitability continues to improve, we maintain the “recommended” rating and are optimistic about the company's development in the long term.
Risk warning:
Product prices did not meet expectations; sales promotion was slower than expected; period expenses were higher than expected, etc.