Incidents:
The company announced its 2019 semi-annual report: in the first half of 2019, it achieved revenue of 843 million yuan, an increase of 24.92% over the previous year; net profit of 175 million yuan, an increase of 6.97% over the previous year; and EPS of 0.14 yuan per share.
Investment points:
Revenue increased by 41.46% in 2019 Q2, and low molecular weight heparin preparations was released rapidly.
2019 Q2 revenue was 476 million yuan, up 41.46% year on year. There was a rapid increase from last year's Q4 (3%) and 2019 Q1 (8.45%). We think this is related to the further increase in the price of heparin sodium APIs and the continued expansion of formulation sales. By category, API revenue in the first half of 2019 was 442 million yuan, up 37.47% year on year, and revenue from outside China was 380 million yuan, up 43.63% year on year, mainly related to the high boom in heparin sodium APIs. As of June 2019, the average unit price of heparin exports was 6367.37 US dollars/kg, which fluctuated at a high level. Overall, the average unit price for the first half of the year increased by 21.76% year-on-year. Formulation revenue for the first half of 2019 was 401 million yuan, up 13.49% year-on-year, slightly lower than expected. However, judging from the Q2 quarterly growth rate, we expect pharmaceutical revenue to accelerate in the second half of the year. In terms of main products, the growth rate of pancreatic kinin peptidogenase is expected to be around 20%, and low molecular weight heparin preparations will double. It is expected to exceed 100 million for the whole year.
The growth rate of formulations lowered the overall gross profit margin, and the increase in expenses lowered performance.
Net profit for the first half of 2019 increased 6.97% year on year and 10.84% year on year after deduction. It was far below the revenue growth rate, mainly due to falling gross margin and rising expenses. The overall gross margin for the first half of the year was 43.82%, down 2.59 percentage points from the previous year. This was mainly due to the increase in the cost of crude heparin products, which led to a 0.48 percentage point decline in the gross margin of APIs, plus the low growth rate of formulations. Expenses for the first half of 2019 were 17.82%, an increase of 0.5 percentage points over the previous year, mainly due to a 29.02% year-on-year increase in sales expenses.
Maintain the “Recommended” rating.
According to the company's equity incentive exercise conditions, we maintain our previous forecast. We expect the company's EPS in 2019-2021 to be 0.22 yuan, 0.26 yuan, and 0.28 yuan. The company's performance in the second half of the year is expected to accelerate, we are optimistic about the company's long-term development, and maintain the “recommended” rating.
Risk warning: sales did not meet expectations; gross margin declined further; expenses continued to rise, etc.