Event: the company released its three-quarter report in 2016, with operating income of 655 million yuan in the first three quarters, down 10.21% from the same period last year. The net profit of returning to the mother was 2.1513 million yuan, an increase of 3.34% over the same period last year. Basic earnings per share reached 0.0037 yuan, an increase of 2.78 percent over the same period last year.
The net cash flow from operating activities increased by 32.26% compared with the same period last year.
The revenue and profit of traditional Chinese medicine preparation business has increased significantly: in the first three quarters of 2016, the company's preparation business achieved revenue of 136 million yuan, an increase of 30.63% over the same period last year, and a gross profit margin of 43.97%, an increase of 8.45% over the same period last year. In 2015, the company focused on adjusting the structure of a series of traditional Chinese medicine oral liquid products, gradually reducing the production and sales of low gross margin products, and strengthening the market development of new products with high gross margins. After the previous stage of market digestion, the adjustment measures have achieved initial results this year, with a substantial increase in income and gross profit.
The substitute decoction business led to the growth of sales of prepared slices: in the first three quarters of 2016, the company realized 340 million yuan in revenue from the business of prepared slices of traditional Chinese medicine, an increase of 9.18% over the same period last year, and a gross profit margin of 22.02%, down 0.77% from the same period last year. Tongjuntang, a wholly owned subsidiary of the company, on the one hand, increases the in-depth tapping of the potential of the original market and expands the scope of cooperation with existing customers, refines the existing business, on the other hand, expands new business and strengthens the development of new markets. Through these efforts, Tongjuntang's drug quality and brand effect have been further recognized by the market, driving the sales of products. At the same time, through the development of traditional Chinese medicine hospitals, Chinese medicine outpatient diagnosis and treatment institutions to provide substitute decoction business, but also to promote the sales business of prepared slices. The factors of seasonal purchase of traditional Chinese medicine have a certain impact on the cost and gross profit margin.
New leader and thickened results for the whole year: in the first three quarters of 2016, the company's drug R & D service revenue increased by 25.34% year-on-year, and gross profit margin increased by 0.53% year-on-year. The main reason is that Beijing's new leader did not merge from January to February in the same period last year. With the introduction of a series of national drug review policies, the pharmaceutical R & D industry has been greatly affected in the short term, and the progress of new leading clinical CRO projects has slowed down than expected.
Strategic adjustment of pharmaceutical circulation business: the company's pharmaceutical circulation business revenue decreased by 57.73% in the first three quarters of 2016. Henan Taixinlong, a subsidiary of the company, integrates business personnel and distribution products this year, adjusts its business strategy, and has a great impact on revenue and profits during the adjustment period. At the same time, Hebei Tailong Pharmaceutical adjusts the varieties of some agent drugs and is affected by the sales cycle of agent products, and the sales revenue has decreased.
Gradual volume of natural plant drinks: in the first three quarters of 2016, the newly developed health food business of Jiaozuo Huaipai Beverage Co., Ltd., a subsidiary of the company, achieved an income of 8.6545 million yuan and a gross profit margin of 29.76%. The company's natural plant drinks have been launched since September 2015, and the market has a good reputation and is now in the stage of gradual production.
Divest Huayu Industries and optimize asset institutions: the company plans to transfer 100% equity of wholly-owned subsidiary Huayu Industries to Zhongsheng Group at a price of 76.6 million yuan. After the divestiture of Huayu Industry, the company's main business will be more prominent, and the operating effect will be fully reflected, which will help the company to concentrate resources, technology, capital and management advantages, strive to build an upgraded version of the main pharmaceutical industry, and achieve the sustained and healthy development of the company.
Profit forecast and investment rating: we expect the EPS of the company from 2016 to 2018 to be 0.01,0.16,0.19 respectively. Although the company's pharmaceutical circulation business has declined significantly, considering that the company's product structure adjustment has achieved results, the pharmaceutical circulation business that is being adjusted will be the company's last weakness, while Tongjuntang and Xinqian are in a period of stable development. we are optimistic about the future development of the company for a long time. Therefore, we maintain the company's "overweight" rating.
Risk tips: industry policy risk; market risk; R & D failure risk and so on.