Inheriting century-old brands, employee stock ownership plan inspires motivation

The predecessor of Jiuzhi Hall, "Lao Jiuzhi Tang Pharmacy", originated in 1650 AD and has a history of 372 years. A "brand + variety" moat has been built, with 339 national drug registration and approval documents, including 35 exclusive varieties and 1 national traditional Chinese medicine protected variety, covering cardio-cerebrovascular, kidney-tonifying, blood-tonifying, women and children, facial features and other fields. In 2020, the company will implement the employee stock ownership plan, with targets for the company's board of supervisors, core technology, business backbone and outstanding contributors, with a transfer price of 5 yuan per share. In recent years, the revenue end has returned to stability, the profit end has been dragged down by the stem cell business, and the company's main business income has gradually covered the input of innovative drugs. after deducting the impact of losses, the company's actual main business operating profit in 2020 was 430 million yuan, an increase of 30% over the same period last year.

More than 100 million pharmaceuticals, with rich reserves of echelon products

At present, the company has established a "three echelons" product matrix.

The first echelon of six core products of more than 100 million, Shuxuetong in the field of cardio-cerebrovascular drugs increased by 14.54% year on year in 2020, with a market share of about 8%, and the reevaluation work is steadily advancing, and the products are expected to enter the base drug catalogue. Five OTC varieties of more than 100 million traditional Chinese medicines (Liuwei Dihuang Pill, Angong Niuhuang Pill, Ejiao, Donkey Glue Buxue granule, Zukuang Powder, all leading in the market). In January 2022, the company raised the prices of some OTC products by 6% and 30%, and the price increase is expected to increase the company's profits. The sales revenue of the second and third echelon products has increased by more than 20% compared with the same period last year, with the potential to become more than 100 million varieties.

Paying equal attention to "tradition" and "frontier", extending the brand value of "Jiuzhitang" in many dimensions.

The company extends the brand value of Jiuzhitang from three directions.

Chain drugstores consolidate brand value: with the commercial layout of regional chain drugstores in Hunan as the center, there are 514 stores with a business income of 1 billion yuan. And inherit the company's history, provide traditional Chinese medicine and health management services, enhance the company's brand awareness.

Layout of large healthy consumer goods, response to e-commerce consumption trend: with the production and supply system of "independent research and development + OEM", with the help of brand advantages to create medicine and food homology + fast consumption daily, and open e-commerce sales channels, to digital marketing transformation.

Long-term strategic vision, invest in the leading domestic stem cell research and development technology: participate in the world-renowned stem cell research and development company Sidi Meike of the United States, set up a domestic stem cell research and development subsidiary Jiuzhi Tang Meike (Beijing), forward-looking layout stem cell innovation industry company, has been approved by IND is the first clinical trial using imported stem cells approved by CDE. The cell therapy industry is 10 billion blue ocean, the global development is rapid, and the development of stem cells in China has also passed the confused period. It is expected that after the formal commercialization of the company's stem cell products, the subsidiaries will turn losses into profits, and even significantly increase the profits of listed companies, breaking through the valuation ceiling.

Investment suggestion

We estimate that the company's revenue in 2021-2023 is 40.1 billion yuan, up 12.8%, 13.0%, 13.0%, and net profit is 2.6 million, 30.4%, 29.9%, respectively, and the corresponding EPS is 0.31, 0.41 and 0.53 yuan, respectively, and the corresponding valuation is 32X/25X/19X. If the loss part is excluded, the company's main business net profit from 2021 to 2022 is expected to be 434 million yuan 516 million yuan, corresponding to the PE of 20x17X. Coverage for the first time, giving a "buy" investment rating.

Risk hint

The market sales of OTC products are lower than expected, the policy risk is lower than expected, and the progress of R & D projects is not as expected.