The company's overall business layout is improving, innovation + high-end imitation + API multi-wheel drive: in 2019, the company ushered in the first year of innovation, through coordinated development with NMS, the introduction of the first innovative drug project I111b, after the channel opened, innovation will continue to help the company's innovation transformation. After years of intensive cultivation, the company's high-end generic drug research and development ushered in the harvest season, a number of potential varieties such as randilol, Rivassaban and Tegrilo are expected to become the company's new growth engine. On the other hand, the existing varieties maintain a steady upward trend.

At the end of 2018, Zhenjiang Derui, a sub-company of raw materials and pharmaceuticals, was put into production, and 2019H1 achieved an income of 37.59 million yuan, growing a new profit growth point. At the same time, planning 160 mu of API and intermediate production base in Anqing, and setting up an API sub-company Anqing Huichen, the API business is expected to continue to grow. At present, the company's business is improving in an all-round way, and it has become a pattern of innovation + high-end imitation + multi-wheel drive of APIs.

Acquisition of NMS, an international quality innovation resource, starts the process of innovation and internationalization: in March 2018, the company participated in the acquisition of NMS, an Italian quality innovation institution, and currently holds about 16.84% of the shares, with a total stake of about 44.88% with the controlling shareholders. Founded in 1965, NMS has a deep accumulation of innovation, covering the whole industry chain of innovation, such as drug research and development, preclinical CRO, clinical CRO and CDMO. It has first-class strength in target discovery, and has invented a number of important varieties in history, such as Conafenib and Entretini, which have been listed recently. The curtain of collaboration between the company and NMS has been kicked off, and the first introduced innovative IDH inhibitor project has been launched. At present, the A round of financing of NMS is coming to an end, the independent listing process has begun, and the company will benefit from the valuation increase brought about by the listing of NMS.

The existing product layout is extensive, and the performance of diuretics and antibiotics is outstanding: Haichen Pharmaceutical Co., Ltd. has a rich variety layout, mainly injection, which is not affected by volume purchase in a short period of time. Diuretics, antibiotics and digestion accounted for the highest proportion, accounting for 80% in 2018. The replacement of the diuretic Torasemi is coming to an end, but the company's share of sales still has room to improve and will maintain a growth rate of more than 15% in the future, higher than that of the industry as a whole. The three major varieties of antibiotics have great potential for development. The sales growth rates of 2019H1 cefotiam, cefoxione and tegacycline are 19.88%, 102.13% and 55.15%, respectively. As a new generation of cephalosporins and tegacycline as super antibiotics, the competition pattern is good, and the future release trend is expected to continue. Digestive products are affected by the application of super-indications, showing a slow decline in recent years, but the company's newly approved variety esomeprazole, as the second generation PPIs, is expected to rely on the rapid volume of lansoprazole channel, contribution increment, leading digestive products to hit bottom and rebound. The existing varieties of antiviral, immunomodulatory and cardio-cerebrovascular diseases are expected to remain stable.

High-end generic drug research and development pipeline is rich, ushering in the harvest season: the company's research varieties are basically only the original research listed potential varieties, are expected to become the first imitation or the first batch of listed enterprises. Judging from the varieties that have been approved or are expected to be approved in the near future: although Changchun Xetine has been transferred out of the medical insurance catalogue, the actual market size is still about 3 billion yuan, and the company has no stock sales, which will bring pure increment after listing. Randilol is a new type of high cardiac selective β-blocker with a market space of more than 500 million yuan in the future. The company is likely to reap the first imitation, and it is expected to bring considerable increase after being approved for listing in 2019. Rivasaban is the world's first oral Xa factor inhibitor, with global sales of about US $6.765 billion in 2018, and domestic sample hospital sales of 567 million yuan, an increase of 35.82% over the same period last year. The company is expected to become the first batch of listed companies. As a newer ADP receptor antagonist, tegregrel has the potential to replace clopidogrel after it was included in health insurance in 2017. The company is expected to go public in 2020, when it will grab a certain market share. In addition, the follow-up layout of the company also includes global heavyweight varieties such as Apexaban, Ezetimib, Tovaptan, Dabiga, Topatib and so on. The layout of high-end generics has entered the harvest period, and new varieties will be put on the market every year in the future.

Profit forecast and investment rating: the company's business is improving in an all-round way, the curtain is opened in coordination with NMS, and the process of innovation and internationalization is started. Considering that the company's core product replacement competition is coming to an end, we adjust the company's EPS to 0.90,1.17,1.48 yuan in 2019-2021 (the original forecast is 0.94,1.19,1.48 yuan respectively), and the current stock price is 35.5 times PE in 2019, maintaining the "recommended" rating.

Risk tips: 1) Core products are included in the scope of volume procurement: the winning varieties for the first time are on the ground one after another, and the second batch of varieties is opened in 2020. If multiple varieties are involved, it will have an adverse impact on the company. 2) R & D progress is not as expected: at present, the company has a number of R & D projects in the registration process, of which randilol and other projects are expected to be approved in the near future, but the drug review may be delayed due to uncertain factors such as policy. 3) merger and acquisition integration is not as expected: at present, NMS has launched the first round of financing to support projects under research, but there are still a large number of funding needs in the follow-up, if it can not be solved well, it will affect the integration and cooperation between the company and NMS.