Events: 1) in 2019, the company's total operating income was 5.003 billion yuan, an increase of 18.44% over the same period last year; the net profit belonging to shareholders of listed companies was 403 million yuan, up 90.96% from the same period last year; and the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 387 million yuan, an increase of 125.81% over the same period last year. 2) in 2020, Q1 achieved a total operating income of 1.126 billion yuan, an increase of 7.87% over the same period last year; the net profit attributable to shareholders of listed companies was 109 million yuan,-37.65% over the same period last year; and the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 101 million yuan,-42.86% over the same period last year.

1) Annual report 2019: in 2019, the business income of traditional Chinese medicine formula granules increased steadily (+ 25.15%), and the gross profit margin was-2.97pct; the income of Xuebijing injection decreased by 17.28%, and the gross profit margin + 0.4pct. There are two main reasons for the decline in gross profit margin of traditional Chinese medicine formula granule business in 2019: changes in the regional structure of ① sales: the relatively stable growth in Beijing, the main market, and the rapid growth in Shandong, Fujian, Hebei, Inner Mongolia, Shanxi and other regions. ② capacity layout: the capacity layout of Beijing, Tianjin and Hebei has been released at the same time and has been certified by GMP. The increase of raw material reserves in the early stage led to a short-term increase in production costs and a decrease in gross profit margin.

In 2019, the company's Xuebijing products were incorporated into the national health insurance through health insurance negotiations, and the terminal coverage was expanded from 15 provinces to 31 provinces, opening up room for a substantial increase in product sales. In addition, in June 2019, the results of a randomized controlled trial of Xuebijing injection in the treatment of severe community-acquired pneumonia were published. the results showed that Xuebijing injection could significantly improve the pneumonia severity index of patients with severe community-acquired pneumonia and reduce 28-day mortality, as well as mechanical ventilation and intensive care unit hospitalization. This study provides support for the subsequent academic promotion of the product.

2) Quarterly report of 2020: revenue end: Xuebijing injection: Xuebijing injection, the core product of Q1 Company in 2020, has been continuously incorporated into the national fourth, fifth, sixth and seventh editions of COVID-19 's diagnosis and treatment Plan.

During the epidemic, the company focused on supplying products to designated hospitals. Sales of Q1 Xuebijing injection increased significantly compared with the same period last year. Due to a price reduction of about 46.54% through health insurance negotiations, Xuebijing Q1 revenue was about the same as in the same period last year.

Traditional Chinese medicine formula granules: the company's traditional Chinese medicine formula granule business grew steadily in January 2020, but affected by the epidemic in February-March, the number of outpatients and inpatients decreased significantly, which had a great impact on the company's formula granule sales.

2020Q1's sales of traditional Chinese medicine formula granules have dropped by about 20%. With the gradual recovery of the number of hospital visits in late March, the sales of traditional Chinese medicine formula particles will also gradually return to growth. Profit side: the difference between 2020Q1 revenue and profit growth is mainly affected by Tibet Zhengkang medical device distribution business. About 15% of 2020Q1's revenue is contributed by Tibet Zhengkang medical device distribution business, but the gross profit margin of medical device distribution business is only about 2%, so the profit contribution of this business is relatively small. During the reporting period, the company's profits were mainly affected by the decline in revenue from the core business of traditional Chinese medicine formula particles.

Through the application of this epidemic, the progress of hospital terminal coverage of Xuebijing products has been accelerated. At the end of 2019, the number of hospitals above the second grade of the company was about 2332, and the number of hospitals at the end of 2020Q1 reached 3886, an increase of about 1500. At present, the coverage rate of target hospitals is 50%, 60%. Through the gradual opening of blank hospitals, Xuebijing is expected to achieve a high sales increase with the help of medical insurance. The sales balance period is also expected to be advanced by the application in the COVID-19 epidemic.

3) the company is currently studying a total of 40 projects, including 5 new drug projects (KB, PTS, anti-hepatitis C drugs, ML4000, Aimdifen tablets), 16 projects have been reported (3 varieties have obtained production approval documents), and 6 projects are in the clinical research stage. The new drug Emdifen tablet is the first oral PD-L1 small molecule inhibitor approved by clinical trials in China, which is in the phase I clinical study; the KB project has completed the Ⅱ a clinical trial and will carry out the Ⅱ b clinical trial this year; the PTS project is currently in the second round of supplement phase of the Drug Review Center of the State Drug Administration, and is expected to complete the second round of supplement in the first half of this year.

4) the company obtained drug registration approval for moxifloxacin hydrochloride and sodium chloride injection in the first quarter of 2020. According to Mine.com, the terminal sales of moxifloxacin hydrochloride injection form exceeded 3.7 billion yuan in 2019, of which the market share of the original drug Bayer was about 44%, that of Nanjing Youke was about 32%, and that of Chengdu Tiantai Mountain was about 21%.

The company's products are the first varieties of the same variety in China to be declared and approved according to the newly registered classification-four categories of chemicals. according to the relevant policies, it is also the first (regarded as) to pass the consistency evaluation of the variety, with the first-in advantage. The company has also actively handled market access, established a sales team and carried out front-line marketing work. At present, only two enterprises have passed the consistency evaluation. If the variety is included in the volume purchase in the near future, a good competition pattern will help to stabilize the price decline and open the market. At present, about 10 enterprises are in the reporting stage of generic drug consistency evaluation, and the number of over-rated enterprises will increase gradually. if this variety is included in volume procurement in the next 2-3 years, the company's market first-in advantage will also help to improve its cost control ability. and lay the foundation for volume procurement.

Profit forecast and investment rating: Xuebijing injection is expected to achieve volume with the help of health insurance, moxifloxacin performance contribution is expected, in the research pipeline will gradually create a new performance growth point. From 2020 to 2022, we estimate that the company's operating income will be 5.253 billion, 6.566 billion and 7.88 billion respectively, the net profit will be 419 million, 519 million and 601 million respectively, and the EPS will be 0.14,0.17,0.20 yuan respectively, corresponding to the PE of 43.28,34.97,30.20 respectively.

Risk hint: the risk of industry policy adjustment, the risk of product price reduction, and the risk that product sales fall short of expectations.