The company recently released its 2020 semi-annual report, which achieved total operating income of 18.809 million (+11.56%), net profit of 777 million yuan (+12.93%), net profit of 750 million (+13.02%) after deducting net profit of non-return to the mother, and net operating cash flow of -1,674 million yuan. The performance was in line with market expectations. Looking at Q2 in a single quarter, total operating income was 11.324 million (+31.44%), net profit of 513 million (+83.91%), net profit of non-return to the mother was 495 million (+93.80%), and net operating cash flow was -401 million.
Comments:
The international trade sector has grown dramatically, and overseas expansion has accelerated. During the reporting period, the company's international trade sector achieved revenue of 7.244 billion yuan (+84.02%) and gross profit margin of 15.46% (+0.56%). The company made reserves of domestic epidemic prevention materials during the epidemic, overcame the adverse effects of the epidemic on the import and export of traditional products, completed the export of epidemic prevention materials and expanded overseas markets. Driven by products related to the epidemic, foreign trade exports have increased dramatically. Latin America, the Middle East, and Eastern Europe are the main growth regions. In the future, the company is expected to continue to expand in Asia, Africa, Europe, Southeast Asia, Latin America and other regions through the cooperative relationships established during the pandemic, and actively establish in-depth cooperative relationships with local governments and enterprises. Since a large proportion of the company's orders from the first half of the year will only be fulfilled in the second half of the year, we expect that the company's international trade sector's performance in the second half of the year is expected to continue the strong growth of the first half of the year.
The pharmaceutical business sector has gradually recovered to pre-pandemic levels. During the reporting period, the company's pharmaceutical business segment achieved revenue of 12.169 billion yuan (+12.15%), with a gross profit margin of 8.47% (-0.64%). Due to the significant reduction in the number of hospital outpatient clinics during the pandemic, the hospital business showed a trend of declining first and then recovering. By the end of half a year, hospital business had basically returned to normal. Currently, the company is actively promoting the development of commercial networks, initially implementing a national network layout, combining local markets, experimenting with the innovation of the Internet+ marketing model, increasing business development for medical devices and pharmaceutical products, and actively undertaking epidemic prevention work. We estimate that as the epidemic is gradually brought under control and hospitals in most provinces across the country have begun follow-up visits, hospital business is expected to be better than in the first half of the year, and is expected to maintain steady growth.
The pharmaceutical industry sector gradually returned to normal profit levels from high gross profit. During the reporting period, the company's pharmaceutical industry sector achieved revenue of 1,902 billion yuan (-28.95%) and gross profit margin of 53.69% (-15.10%). Sales of injectable piperacillin sodium tazobactam sodium, injectable cefoperazone sodium tazobactam, and atorvastatin calcium capsules declined sharply due to the impact of policies such as “volume procurement”, “anti-drug restrictions” and medical insurance catalogue adjustments, as well as the impact of the epidemic. Currently, the company continues to focus on product strategy, continuously improve R&D system construction, and focus on key product line areas. We anticipate that the industrial sector is expected to resume steady growth with the gradual development of generic drug consistency evaluation work, new product development, and secondary development of dormant varieties.
Profit forecasts, valuations, and investment ratings. As the company was affected by the epidemic, the pharmaceutical business and pharmaceutical industry sectors were gradually recovering in the first half of the year. We lowered the company's net profit forecast for 20-22 to 1,125 billion yuan (+14.7%), 1,307 million yuan (+16.2%), and 1,509 million yuan (+15.5%). The original forecast for 20-21 was 1,362 million yuan and 1,503 million yuan; we forecast EPS for 20-22 to 1.05/1.22/1.41 yuan respectively. The company's free cash flow will be relatively stable in the future, and the DCF valuation method will be used. In view of the sharp growth in the company's international trade sector and the growth trend is expected to continue in the future, we raised the company's target price to 17.5 yuan. The original target price was 15.2 yuan, maintaining the “recommended” rating.
Risk warning: The epidemic has worsened again, and Chongqing's medical and health performance has fallen short of expectations.