Report guide

The company's short-and medium-term results are vulnerable to fluctuations in the delivery of API orders, the pace of domestic volume purchases and the sales of stock varieties in the United States. we suggest that we look at the annual growth rate and pay attention to the pace of FDA review in the United States.

Main points of investment

Performance: year-on-year increase of 63% net profit in 2020 compared with the same period last year. The company released its 2020 and 2021Q1 results KuaiBao, with an income of 6.49 billion yuan (yoy+20.4%) and a net profit of 930 million yuan (yoy+63.2%). The net profit of 2021Q1 is 2.42-265 million yuan (yoy+15% to 25%), and the net profit of deducting non-return is 1.48-168 million yuan (yoy is down 15% to 25%). The difference between Homeo and Kou is due to the income from the transfer of shares in Jubilee Biology.

Performance in 2020: the advantage of forward integration in mining leads to rapid growth. we believe that the net profit of homing in 2020 will be affected by more one-time fees, such as the exchange loss of 145 million yuan. taking into account the exchange rate environment and the company's exchange policy in 2021, we believe that the drag on the company's performance in 2021 is expected to be significantly reduced.

In addition, the core driver of performance growth in 2020 comes from the cost advantage and manufacturing dividend of forward integration under domestic volume procurement. We are most concerned about the rhythm-variety, volume procurement winning bid-contract renewal through the company consistency evaluation. The three varieties that won the bid in the third round of procurement in 2020 will continue to contribute to the incremental profits of domestic preparations in 2021.

2021Q1 performance: Q1 short-term fluctuations, more concerned about the collection of incremental deduction of non-return net profit growth decline, we speculate that several factors may affect Q1 profit growth:

1 under the environment of RMB appreciation, the conversion of US dollar API income into RMB may bring pressure on gross profit margin or reported income.

2 domestic preparations: may be related to the sales of varieties purchased with volume and the pace of infiltration, there is a large space for long-term sales in the field of chronic disease, but in the short term it may be affected by orders, the rhythm of winning the bid, etc.; 3 American preparations: we are most concerned about the rhythm of FDA inspection in 2021, and the sales of preparations in the United States are expected to return to normal after the lifting of the ban.

Prospect: the advantage of integration still exists, we pay attention to the catalytic factors of domestic collection and American FDA review, we believe that the company is still the leader of domestic API export and the forerunner of forward integration, and has formed a diversified product echelon, more mature production quality management system and registration experience in the process of preparation internationalization. Before the normalization of US business, the company's short-and medium-term results are vulnerable to fluctuations in the delivery of API orders, the pace of domestic volume purchases and the sales of US stock varieties. We are concerned about the progress of FDA approval and its potential flexibility to the company's US generic drugs and global API business.

Profit forecast and valuation

Taking into account the volume rhythm of winning bid varieties in the company's volume procurement, the increment space of API new varieties and the high base of sales of generic drugs in the United States before the lifting of the US export ban, we do not consider the profit contribution of winning the bid for newly collected varieties for the time being, we estimate that the company's EPS will be 0.97 and 1.17 yuan per share from 2021 to 2022, an increase of 38.1% and 21.5% over the same period last year. If the number of varieties that win the bid in the second round of collection in 2021 increases or the speed of FDA review in the United States is as fast as expected, the company's profit growth in 2022-2023 is expected to exceed our expectations and adjust the rating to "overweight" rating.

Risk hint

The risk of collecting the standard of core varieties; the risk that the progress of FDA inspection is slower than expected; the risk that overseas litigation compensation is higher than expected; the risk of performance volatility caused by export foreign exchange locking; the risk of production quality management, and so on.