2021 Revenue and Net Profit Exceed Expectations
The company announced its 2021 results: revenue was RMB 19.05 billion, an increase of 28.7% over the previous year; the net profit of the mother was RMB 1.93 billion, an increase of 16.2% over the previous year, corresponding to a profit of RMB 0.38 per share. The main reason the performance exceeded expectations was because the growth of the main business exceeded expectations.
Development trends
Formulated pellets continued their growth trend in 2021, and net interest rates declined somewhat. In 2021, revenue from the formula pellet business was 13.23 billion yuan, an increase of 32.2% over the previous year, accounting for 69.5% of total revenue. In 2021, the sector's gross margin was 70.0%, down 0.5 percentage points from the previous year. In 2021, the sector's net profit margin was 16.2%, down 1.2 percentage points from the previous year, mainly due to the company's early layout of the primary medical institution market and increased investment in the market. The company implemented the optimization and restructuring of the equity and business structures of the two core subsidiaries, and we believe that the competitive vitality of the two in the market is expected to be further stimulated.
The gross margin of the pharmaceutical business increased. In 2021, the sector's revenue was $3.49 billion, up 13.8% year over year, or 18.3% of total revenue. In 2021, the sector's gross margin was 61.0%, up 3.8 percentage points from the previous year. The reason for the increase in gross margin was a significant increase in the turnover of high-margin products during the period. In 2021, the sector's net profit was 6.7%, down 0.5 percentage points from the previous year.
The revenue of Chinese medicine tablets in 2021 was 1.42 billion yuan, an increase of 14.6% over the previous year. Gross margin was 17.3%, an increase of 2.1 percentage points over the previous year. Net profit margin fell 2.1 percentage points year over year to -5.0%. The company has increased investment in marketing expenses and R&D expenses, and actively exploited production capacity collaboration. We believe that in the future, the company is expected to build a complete national Chinese medicine supply chain system.
Profit forecasting and valuation
We maintained our net profit forecast for 2022/2023 at 0.41/0.47 yuan, up 6.3%/14.8% year-on-year respectively. We maintain an outperforming industry rating. The company's current stock price corresponds to a price-earnings ratio of 8.3 times/7.3 times 2022/2023. Considering the downward shift in the sector's valuation center, we lowered our target price by 18.6% to HK$5.86 (corresponding to 12.3 times the 2022 price-earnings ratio and 10.8 times the 2023 price-earnings ratio, which has 48.0% room from the current stock price).
risks
Revenue from new business investment fell short of expectations; revenue from formula pellets fell short of expectations