occurrences
The company recently announced its 2020 semi-annual report. The company achieved operating income of 760 million yuan, a year-on-year decrease of 18.97%; net profit returned to the mother and net profit of the non-return mother was 0.13 to 0.07 million yuan, a year-on-year change from loss to profit. Among them, the company achieved revenue of 474 million yuan in the second quarter, a slight decrease of 7.8% year-on-year, and a quarter-on-quarter increase of 65.9%. Net operating cash flow in the first half of the year was 196 million yuan, an increase of 153.22% over the previous year.
Investment highlights:
The chemical business turned a loss into a profit, and technical improvement measures achieved effective results
During the reporting period, Tongzi Chemical achieved revenue of 636 million yuan, a year-on-year decrease of 13.9%. The reason is that the prices of the main products urea and methanol have declined compared to the same period. The gross profit margin of the chemical business was 22.25%, an increase of 16.28 percentage points over the same period. The reason is that the company combined technological improvements and technical measures to reduce coal consumption during the stage of falling coal prices for raw materials (which can save about 15 million yuan in transportation costs per year), which led to cost reduction, which in turn caused Tongzi Chemical to turn a loss into a profit. In terms of production capacity, the company plans to build a new vehicle urea project (production capacity 50,000 tons/year) and a 100,000 ton compound fertilizer project to be put into operation in August and the end of this year. At the same time, the company completed the annual overhaul in March, and the daily production of liquid ammonia and methanol increased year-on-year.
The company's cost rate for the period was 27.12%, an increase of 5.23 percentage points over the same period. This was due to Tongzi Chemical's overhaul this year and increased management expenses.
The divestment of the chemical business focuses on the pharmaceutical industry, and the related business is still being developed. The company publicly listed and transferred 100% of Tongzi Chemical's shares in June of this year, accelerating the focus on the main pharmaceutical line. In the pharmaceutical direction, the company is promoting diabetes and specialty national medicines, entering into stem cell biotechnology research and production of biological products, but currently the company is still in the pharmaceutical industry.
During the reporting period, the company's pharmaceutical business revenue was 116 million yuan, a year-on-year decrease of 38.66%. Among them, the gross profit margin of the Western medicine sector was 64.66%, down 18.35 percentage points from the same period. The main reason was that the average sales price of Western medicines declined significantly due to the linkage between collection and price.
Profit forecast and investment advice: Due to the company's impact of the pandemic, we slightly lowered our original full-year performance expectations. From 2020 to 2022, the company is expected to achieve net profit of $0.31, 0.47, and 052 million yuan (the original values were 0.59, 0.66, and 74 million yuan), achieving EPS of 0.02, 0.03, and 0.03 yuan respectively. Corresponding to the current stock price of PE is 161 times, 107 times, and 95 times, respectively.
The “wait and see” rating continues to be maintained in view of the uncertainty surrounding the divestment of the chemical business.
Risk factors: the risk of major asset sales being suspended or falling short of expectations, the risk of slow expansion of the pharmaceutical business, and the risk of slow cultivation of growth points.
