Original title: Shenwei Pharmaceutical (02877.HK): Chinese medicine formula granules are growing rapidly, corporate cash flow is abundant, maintaining a “buy” rating, and the target price is HK$8.67 Source: Gelonghui
Agencies:Guoyuan Securities
Target price: HK$8.67
Key points of investment
The share of traditional Chinese medicine injections declined, and the gross profit of companies contributing to oral products reached 72.3%:
The company's oral products include softgels, granules, traditional Chinese medicine formula granules and other dosage forms. In 2019, oral products continued to achieve revenue of 1.48 billion yuan, a year-on-year growth rate of 20.8%, accounting for 54.7% of total revenue, accounting for 54.7% of the company's gross profit, and a further increase of 72.3% in mid-2020. Traditional Chinese medicine injections accounted for only 27.7% of the company's gross profit, and the product structure became more reasonable. Formulated granules are not affected by collection. Other products are low-priced drugs, and the company has also vigorously strengthened OTC channels, with little impact.
The number of traditional Chinese medicine formula particles continues to grow rapidly, and there is a lot of room for new drugs under development, such as Ciluotong capsules:
Traditional Chinese medicine formula granules continued to develop rapidly, achieving a growth rate of 60% in 2019, generating 500 million yuan in revenue. In the second quarter of 2020, the revenue of traditional Chinese medicine formula granules increased by 10.7% during the same period, and the growth in the third quarter expanded to 25.4%. In the future, with the opening up of policies, the company will also continue to expand the market layout of traditional Chinese medicine formula granules. It is expected to build production equipment in a northern coastal province in 2021. As of mid-2020, sales of traditional Chinese medicine formula granules have newly covered 68 hospitals in Hebei Province and 41 in Yunnan Province. The company has now received breakthrough innovative drugs in three clinical trials: Celerotong capsules, Q-B-Q-F concentrated pills, JC capsules, and Celerotong capsules to treat vascular dementia and Alzheimer's disease. Currently, phase III clinical trials are being carried out in Australia and China, and are expected to be completed in 2022 and 2023. It is estimated that the number of Alzheimer's patients in China will exceed 10 million in 2025. Currently, there are no effective treatments for this treatment field, so future market space can be expected.
Digital marketing model transformation, abundant cash flow, covering 106% of total market capitalization:
In 2019, the company continued to strengthen target terminal coverage and achieved more than 500,000 terminal customers, including hospitals and retail pharmacies at all levels, an increase of 140.4% over the previous year. At the same time, the company began the transformation of the digital sales model, created an Internet digital marketing division, and launched platform cooperation with many mainstream e-commerce businesses. While the company guarantees stable dividends, its cash flow has continued to grow for many years. In mid-2020, the company held RMB 4,083 billion in cash, with a market value of HK$4.5 billion, with cash accounting for 106% of the market capitalization.
The initial coverage gave a buying rating, with a target price of HK$8.67:
The EPS for 2020-22 is expected to be 0.56, 0.67, and 0.80, respectively. The company's current PE is 8.6 times, lower than the Hong Kong stock industry average of 15.67 times. The company was given a target PE of 11 times in 2021. The corresponding target price was HK$8.67, which had room to rise 62.06% from the current price, covering the “buy” rating for the first time.