Management expects Yulin Pharmaceutical to complete more than a year of channel inventory clearance by the end of 2021, laying the foundation for growth recovery and maintaining stock buyback plans and dividend policies. at the same time, we estimate that the company has sufficient cash to support the above capital allocation (estimated net cash at the end of 21 years is 1.1 billion yuan)

We have raised the target price of the category-plus valuation method from HK $7.7 to HK $8.8. We believe that the company's current valuation is historically low, and that dividends and buybacks increase investment returns and maintain buy ratings.

Kidney line products will continue to be the main driving force for 21 years of sales growth. Management expects that kidney line products will maintain a year-on-year growth rate of about 15% in 21 years, mainly benefiting from the solid layout of its domestic chronic kidney disease field. and the main variety Niaoduqing granule has a low risk of collection. The company said that Niaoduqing granule is an exclusive variety of traditional Chinese medicine and has not yet been listed in the national or provincial key monitoring list of drug control fees. In addition, the company has completed evidence-based medicine research on chronic kidney disease and achieved positive results, further reducing potential policy risks. At the same time, we expect a general sales recovery in the company's other product lines, further boosting 21-year sales growth. Yulin Pharmaceutical has reduced its OTC channel inventory turnover months from 15 months in 2019 to 9 months in 2020. Management reiterated that after more than a year of inventory removal efforts, OTC channel inventory levels will reach a healthy level in 21 years. At the same time, the company has completed the integration of the original Yulin marketing team and further expanded its sales channels through cooperation with large chain retail pharmacies and online sales. We believe that the improvement in the performance of Yulin Pharmaceutical will be the main catalyst for valuation revaluation in 21 years.

Update the target price of the category-plus valuation method to HK $8.8; maintain buying

We have raised the company's adjusted earnings per share forecast for fiscal 22 by 3% to reflect that ongoing share buybacks have reduced the number of outstanding shares. We also rolled the valuation base period to the end of 21 years and raised the target price from HK $7.7 to HK $8.8. Based on the company's low valuation (6x/5x 's forecast price-to-earnings ratio of 21thumb 22), abundant net cash level (expected to be about RMB 1.1 billion by the end of 21, or about 30 per cent of the current market capitalization), and attractive capital allocation potential (the projected dividend yield for fiscal 21 is 6 per cent plus ongoing share buybacks), we maintain our buy rating on Conson.