The company's performance declined in 2019, basically in line with expectations; the industrial sector is obviously under pressure under the influence of volume procurement, and the commercial and trade sectors are expected to begin to accelerate; with the promotion of the integrated two-wing strategy, the strength of the second and third terminals is worth looking forward to. Continue to recommend and maintain the "overweight" rating.

The performance declined in 2019, basically in line with expectations. In 2019, the company realized revenue, return net profit and deducted non-return net profit of 35.285 billion / 981 million / 882 million yuan, respectively, compared with the same period last year, + 13.80%, 36.46%, 13.17%, and net operating cash flow-538 million yuan. In a single quarter, 2019Q4 realized revenue, net profit and non-return net profit of 8.615 billion / 279 million / 255 million yuan respectively, which were + 5.11%, 95.85% and 30.22% respectively compared with the same period last year. The company's performance declined in 2019, mainly due to the volume procurement of the industrial sector, the construction of Zhongjian company and the decline in the price of API inventory, which was basically in line with expectations.

The industrial sector is obviously under pressure, while the commercial sector is growing rapidly. In 2019, the revenue of the pharmaceutical industry sector reached 5.219 billion yuan, down 10.72 percent from the same period last year, while operating profit fell 54.85 percent to 288 million yuan. The obvious decline in revenue and profits was mainly due to the fact that Atto and Ruishu were included in the first collection list, antibiotic preparations such as clindamycin phosphate and acetylspiramycin tablets were affected by the "restricted resistance" policy, and the reform of the company's industrial marketing system was still in progress; the decline in plate income was smaller than profits, mainly due to structural adjustment and the impact of rising prices of pharmaceutical raw materials. The commercial sector achieved an operating income of 23.615 billion yuan in 2019, an increase of 21.42% over the same period last year, and an operating profit of 849 million yuan, an increase of 35.97% over the same period last year. Considering that Henan and Guangdong Province have completely got rid of the negative impact of the "two-vote system", and the company has improved its sales network and increased the allocation of goods with high gross margins through mergers and acquisitions and regional expansion, the performance of the commercial sector is expected to continue to develop. The revenue of the international trade sector reached 7.447 billion yuan, an increase of 11.63% over the same period last year, and the operating profit was 658 million yuan, up 10.10% over the same period last year. This is mainly due to the company's strengthening cooperation in medical devices, reagents and consumables during the reporting period, introducing high-quality suppliers and strengthening the expansion of high-quality products to Latin America, Africa and other regions. The company's sales expense rate decreased from 1.59PCTs to 9.75%, mainly due to the decline in revenue in the pharmaceutical industry sector with higher sales expense rate (54.16%), and the gradual optimization of the company's sales system; the management expense rate (including R & D) slightly increased to 2.77%, and gradually stabilized with the deepening of the company's resource integration and business coordination. The financial expense rate remained stable at 0.44%, the same as the previous year, due to the company's strong financial strength and efficient financing control.

The integrated two-wing strategy continues to advance, and the performance of the second and third terminals is expected to improve. During the reporting period, the company's integrated and two-wing strategy continued to advance, and a total of 50 specifications (including injections) were launched in 2019, and 5 declared varieties have been approved. In 2020, the company will focus on promoting the consistency evaluation of injection products. At present, the company is developing 68 new products (including 3 first-class new drugs and 4 traditional Chinese medicine). During the reporting period, a class of new drugs YPS345 raw materials and tablets obtained clinical approval, cefotiamide hydrochloride for injection obtained production approval documents, a class of new drugs TPN729MA, Hemay-020 and YPS345 entered phase II and phase I clinical stage respectively. It is worth looking forward to the accelerated landing of new varieties (including secondary development) and the optimization of product structure in the field of prevention / health care in 2020. During the reporting period, the company continued to open up the off-bid market and expand the medical terminal channel resources. with the continuous development of the second and third terminals, the sales decline of the main varieties Atto and Ruishu has gradually narrowed to 23%. During the reporting period, Zhongjian Company has promoted more than 200. with the acceleration of the strategy of "promoting to the hospital, attracting investment to the county, and OTC to the store", the company is expected to build a differentiated advantage pattern and lay a solid foundation for long-term development.

Risk factors: M & An integration is not up to expectations, continuous lack of research and development of new products, excessive competition leads to a decline in gross profit margin and so on.

Profit forecast and rating. The company's industrial sector fine investment and commercial plate point strong Netcom strategy continues to advance, 2020 revenue is expected to gradually recover, profitability is expected to improve. Considering that the collection and acquisition policy still has a significant impact on the company's short-term performance, adjust the company's EPS forecast for 2020-2021 to 1.02 shock 1.17 yuan (originally 1.430.53 yuan) and increase the 2022 profit forecast by 1.36 yuan to maintain the "overweight" rating.