Events:

The company released semi-annual report 2019: in the first half of 2019, the company achieved an income of 456 million yuan, an increase of 33.51% over the same period last year; its net profit was 53 million yuan, an increase of 29.68% over the same period last year; and EPS per share was 0.44 yuan.

Main points of investment:

The company's revenue continued to grow rapidly, and cefoxion sodium for injection increased by 102.13% compared with the same period last year.

The company's Q2 revenue in 2019 was 245 million yuan, an increase of 37.91% over the same period last year, which was higher than that of Q1 (28.73%) and slightly exceeded our expectations. According to categories, income continued to grow rapidly in the first half of 2019, of which the income of diuretics (Torasemi) was 186 million yuan, an increase of 33.55% over the same period last year, and sales of 14.1262 million units (equivalent to 10mg), an increase of 30.28% over the same period last year, continued to maintain a dominant position. The income of antibiotics was 122 million yuan, an increase of 39.51% over the same period last year, of which the sales of cefotiam, the main product, was 64.3623 million yuan, up 19.88% over the same period last year, and 3.9112 million units (equivalent to 10mg), an increase of 9.00% over the same period last year. As the second-line product cefoxione sodium entered the province of health insurance, the sales increased by 22.1644 million yuan, an increase of 102.13% over the same period last year, with sales of 290,300 units, an increase of 129.46% over the same period last year. In addition, the sales of tegacycline was 22.0235 million yuan, an increase of 55.15% over the same period last year, and the sales volume was 58000, an increase of 65.62% over the same period last year. And lansoprazole due to supporting injection water manufacturers maintenance, clinical use monitoring and other reasons, continued the decline in Q1 in the first half of the year, sales of 28.3478 million yuan, down 22.10%, sales of 1.2144 million, down 19.47% from the same period last year. In addition, the company's API and pharmaceutical intermediates business developed smoothly in the first half of 2019, with a total income of 37.5867 million yuan, of which Q1 income was 14.76 million yuan and Q2 income was 22.82 million yuan.

The company's gross profit margin declined compared with the same period last year, and the performance growth was in line with expectations.

In the first half of 2019, the comprehensive gross profit margin was 82.09%, down 3.91% from the same period last year, compared with Q1 (81.61%). We believe that this is mainly related to the company's new raw materials and intermediates business, and due to a sharp increase in Torasemi costs by 68.38%, the diuretic gross profit margin fell 1.60 percentage points year-on-year. In terms of performance, the net profit of homing in the first half of 2019 increased by 29.68%, which was lower than the growth rate of income, mainly due to the decline in gross profit margin and the rate of expenses during the period. During the first half of 2019, the expense rate was 67.06%, down 3.55% from the same period last year, of which the sales expense rate, management expense rate and financial expense rate were 58.19% and 8.31%, respectively, down 2.99% and 0.85% from the same period last year; and the financial expense rate was 0.57%, an increase of 0.3% over the same period last year.

In the first half of 2019, 29.8044 million yuan was invested in R & D, and the R & D project was progressing smoothly.

In the first half of 2019, the company invested 29.8044 million yuan in R & D, an increase of 17.56% over the same period last year. In the first half of the year, the company obtained the registration approval of vinpocetine injection to further supplement the cardio-cerebrovascular products; in addition, randilol hydrochloride is also expected to be approved in 2019, while rivasaban raw materials and tablets and tegrilol tablets are already under production approval, and are expected to be approved one after another. In addition, in terms of consistency evaluation, amlodipine besylate tablets are already under review, while other major products such as torasemide, tegacycline and esomeprazole sodium are also being carried out in an orderly manner. In addition, NMS Group, the external authorized product Entratini has been approved to be listed in Japan in June 2019, and FDA is expected to be approved in the near future. As for its own products, NMS-03305293, a selective PARP1 inhibitor, was applied for acceptance by FDA in the United States.

We believe that the company's dual layout of high-end generics and innovative drugs provides the driving force for the company's long-term development.

Maintain the recommended rating.

We maintain the previous forecast that the company's EPS from 2019 to 2021 is expected to be 0.91,1.17,1.41 yuan respectively, and the current valuation is at a reasonable level. We are optimistic about the long-term development of the company and maintain the "recommended" rating.

Risk hint

The risk of drug price reduction; the slow progress of product research and development; the slower than expected sales promotion and so on.