The company forecasts that net profit in the first half of 2020 will fall by 25-30% compared with the same period last year, in line with our expectations.
The company released a performance notice, and it is expected that the company's net profit in the first half of the year will drop by 25-30% compared with the same period last year, mainly due to the impact of COVID-19 's epidemic.
Pay attention to the main points
We believe that the company's first-half performance was affected by the COVID-19 epidemic. Due to the influence of COVID-19 's epidemic in the first half of the year, Chinese mainland Pharmaceutical retail pharmacies shortened business hours and reduced passenger flow, and most of the company's proprietary Chinese medicine products were sold in retail pharmacies, resulting in a year-on-year decline in sales of the company's main products. Based on the performance preview estimates, we expect net profit in the second quarter of 2020 to decline by about 17-28% year-on-year and 9-21% month-on-month.
Core subsidiary Tongrentang Sinopharmaceuticals forecast a 30-40% drop in first-half income and after-tax profits compared with the same period last year. In 2019, the core subsidiary Tongrentang Sinopharmaceuticals accounted for 28.2% and 44.6% of the company's revenue and profits.
We believe that the sales of the company's main products are expected to recover gradually in the second half of the year. At present, the company's traditional Chinese medicine production base has initially formed a new pattern of Beijing + Hebei, which we think will help to solve the company's production capacity problem. The company began to carry out channel reform in 2018, strengthen the layout of medical institutions and the top 100 chains, and actively explore the layout of e-commerce channels.
Valuation and suggestion
We maintain our earnings per share forecasts of 0.35 yuan and 0.37 yuan in 2020 and 2021, corresponding to year-on-year increases of 5.9% and 7.3%, respectively. The current share price corresponds to 17.4 times and 16.2 times earnings in 2020 and 2021. We maintain a neutral rating and a target price of HK $7.10 (corresponding to 18.2 times and 17.0 times 2020 and 2021 price-to-earnings ratios, with 5% upside from the current share price).
Risk
Depreciation pressure of Daxing and Yutian base.
