Analysis and judgment
The company was formerly a regional pharmaceutical circulation enterprise.
The company's predecessor is Huatong Pharmaceutical, mainly engaged in drug wholesale, drug retail, drug production and sales and other business. In addition, the company is also engaged in pharmaceutical logistics, pharmaceutical exhibitions, medical services and other business. From 2016 to 2019, the company's operating income increased from 1.258 billion yuan to 1.679 billion yuan, showing a steady upward trend as a whole; the net profit of returning home decreased from 40.16 million yuan to 25.05 million yuan. In the first three quarters of 2020, the company achieved operating income of 1.107 billion yuan, yoy-12.61%; achieved a net profit of 23.33 million yuan, yoy-13.52%.
In terms of income composition, the company's pharmaceutical wholesale business accounted for about 70% of the company's revenue in 2017-2019, which was the company's main source of income, followed by drug retail and drug production, accounting for 15% and 10% respectively. In terms of gross profit composition, the gross margin of the company's pharmaceutical wholesale business remained at about 37% from 2017 to 2019, which was the company's main source of gross profit, followed by drug production and drug retail.
Zhejiang Nong Holdings is in charge to create a platform for the integration of agricultural materials, automobiles, medicine, urban and rural trade circulation and integrated services.
As of November 14, 2020, 100% of the underlying assets Zhejiang Nong shares have been transferred to the company, and the relevant industrial and commercial change registration procedures have been completed. Since then, the company's main business has expanded from medicine to agricultural materials, automobiles and other sectors. In terms of agricultural materials business, the sown area of corn & temporary storage inventory have both bottomed out, while the production capacity of pigs downstream is recovering rapidly, and the continuous expansion of the contradiction between supply and demand of corn will support the upward price of corn, which will lead to a moderate rise in the prices of rice and wheat. The price rise of major agricultural products such as corn, rice and wheat will lead to the warming of the planting industry chain, which in turn will lead to a booming demand for agricultural materials. In terms of automobile circulation business, up to now, the company has nearly 30 standard automobile 4S stores. With the rise of the automobile industry chain, the company is expected to achieve stable performance growth. In terms of pharmaceutical business, the company has been ploughing the pharmaceutical field for many years, and the pharmaceutical sector's main business includes pharmaceutical wholesale, pharmaceutical retail, pharmaceutical production and sales, and so on. By the end of 2019, the company had 94 stores, including 66 in rural areas and 28 in cities. With the promotion of China's new rural cooperative medical system and rural medical insurance system, the rural market is bound to become a key area for pharmaceutical circulation enterprises to develop, and the company is expected to fully benefit.
Investment suggestion
We estimate that from 2020 to 2022, the company's operating income will be 307.18 million RMB 343.362 trillion respectively, the net profit attributable to the company will be 3.53 Universe 3.98 trillion yuan, and the EPS will be 0.72 Universe 0.94 yuan, respectively. The current share price will correspond to the PE of 15x13 Universe 11X, covering for the first time and giving it an "overweight" rating.
Risk hint
Agricultural demand is lower than expected, production safety risk, policy disturbance.