2019 the increase is stable, the target price is 13.52-14.56 yuan, and the rating is downgraded to "overweight".
The company released its annual report in 2019, with an income of 9.38 billion yuan (Yoy+14.1%), a net profit of 1.06 billion yuan (Yoy+ 8.9%) and a non-return net profit of 990 million yuan (Yoy+ 9.1%). The overall performance showed a steady growth trend. Specialist preparations led the growth in all businesses (Yoy + 47%), due to the annual income increase of nearly 300 million yuan in central Hunan, and the stability of infusion and chronic disease business. Looking forward to 2020, we believe that infusion is still an important starting point for core profits, and terminal demand is expected to rebound after the epidemic, but the pharmaceutical business will face more severe collection pressure. Therefore, we downgrade the forecast of EPS in 20x21 to 1.04 PE 1.12 yuan, and give it 13-14 times of 20-year PE (taking into account the negative impact of the company's subsequent collection, which is 10-20% lower than that of comparable 20-year PE), the target price is 13.52-14.56 yuan. Downgrade to "overweight".
Infusion: the proportion of soft package continues to increase, and the volume of BFS is accelerated.
The infusion sector achieved 2.94 billion yuan in revenue in 2019, a slight increase of 4.3% over the same period last year, and the proportion of soft bag sales further increased to more than 60% (+ 3pp vs 2018), directly promoting the overall gross profit margin to increase 0.87pp. Among them, the high value-added BFS increased by 43% compared with the same period last year, with annual sales exceeding 5000 million bags, and direct soft increased by 17% over the same period last year. The infusion plate has laid a solid foundation for the company's long-term development and provides stable cash flow for follow-up pipeline research and development and strategic transformation. We expect the sharp decline in the number of 1Q20 clinics to have a temporary impact on the infusion sector. with the effective control of the epidemic and the restoration of hospital order, terminal demand is expected to rebound quickly in the second quarter and is expected to maintain low single-digit growth for the whole year.
Chemical medicine: the growth of traditional products slows down, and the collection of core products has an impact on the pharmaceutical sector (chronic disease + specialist). The revenue of the pharmaceutical sector (chronic disease + specialist) reached 4.71 billion yuan in 2019, an increase of 22.3% over the same period last year, of which specialist preparation increased by 47% year on year, mainly due to the continuous high growth of Xiangzhong Pharmaceutical (magnesium valproate sustained-release tablets for the whole year nearly 300 million yuan) and peritoneal dialysate (Yoy+22%). In the field of chronic disease, pivastatin is still strong (Yoy+40% is expected), second-line new products (metformin sustained-release tablets up 47% year-on-year, Noble up 45% year-on-year), impacted by base drug adjustment and collective mining, leading products hypotension 0 and amlodipine growth are weak (15.5% of total revenue in 2019). With the full implementation of collection and expansion, we expect that 20 years of traditional drugs will face more severe challenges. Growth in the pharmaceutical sector is expected to slow to a single-digit range for the whole year.
Waiting for strategic transformation to improve profitability
The company has abundant cash on paper (RMB 2,01919), with an annual R & D investment of 348 million yuan (accounting for 7.3% of the pharmaceutical business income). There are more than 100 projects under research (including more than 50 consistency evaluations), two new generic drugs (levetiracetam tablets and ambroxol hydrochloride sodium chloride injection) approved in 2019, and two generics overreviewed (metformin sustained release tablets and finasteride tablets). Five consistency evaluations of caffeine citrate were still in the approval stage in March 2020. As one of the top 100 domestic pharmaceutical groups with a history of 80 years, facing unprecedented changes in industry policy, it is inevitable to move from traditional general imitation to innovation and characteristic imitation, and collective mining will also greatly shorten the window reserved for transformation. the company may take advantage of R & D outsourcing and Becton Dickinson & Co to speed up the acquisition of multi-channel products to seek new growth engines.
Risk hint: the new round of collection of varieties and price reduction exceeded expectations, and the progress of research and development was lower than expected.
