Results in the first half of 2020 are in line with expectations
Tongrentang Technology released its results for the first half of 2020: revenue for the first half of the year was 2.24 billion yuan, down 9.5% from the same period last year. The net profit was 272 million yuan, down 29.0% from the same period last year, corresponding to 0.21 yuan per share.
Trend of development
In the first half of 2020, there were five products with sales exceeding 100 million yuan. In the second quarter of 2020, the revenue was 1.083 billion yuan, up 9.5% from the same period last year / down 6.5% from the previous year, and the net profit was 122 million yuan, down 26.0% from the same period last year. In the first half of 2020, the sales of Liuwei Dihuang pills, Jinkui Shenqi pills and Xihuang pills increased by 16.66%, 5.42% and 49.38% respectively, while those of Niuhuang jiedu tablets, cold and heat clearing tablets decreased by 22.97%, 41.30% and 31.75% respectively. In the first half of 2020, the overall output of proprietary Chinese medicine increased by more than 30% compared with the same period last year.
The subsidiary was affected by the COVID-19 epidemic. The income of Tongrentang national medicine was 515.5 million yuan, down 27.56% from the same period last year, and the net profit of returning mother was 205.5 million yuan, down 33.64% from the same period last year. The income of Tongrentang Maierhai was 31.8 million yuan, down 28.60% from the same period last year, and the net profit was 2.29 million yuan, down 67.84% from the same period last year. The income of Tongrentang second traditional Chinese Medicine Hospital and South third Ring Road drugstore was 81.7 million yuan, down 21.22% from the same period last year, and the net profit was 740000 yuan, down 87.18% from the same period last year.
In the first half of 2020, gross profit margin fell 6.3 percentage points year-on-year / rose 7.2 percentage points to 45.6%, and net profit margin decreased 3.3 percentage points year-on-year / rose 10.4 percentage points to 12.1%. The sales expense rate was 15.8%, up 0.2% from the previous month, and the management expense rate was 8.2%, down 2.6% from the previous month.
Profit forecast and valuation
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 15.2 times and 14.1 times earnings in 2020 and 2021. We maintain a neutral rating and target price of HK $7.10, corresponding to 18.2 times and 17.0 times 2020 and 2021 price-to-earnings ratios, which is 20.3% upside from the current share price.
Risk.
Depreciation pressure on two new production bases; the cost of donkey skin is rising.