Events:
Subsidiary Haizheng Borey plans to transfer old shares and increase capital and shares, with a pre-investment valuation of not less than 5.6 billion yuan, a transfer of old shares of not less than 2.828 billion yuan, and a capital increase of not less than 1 billion yuan. After the completion of the capital increase and transfer, the company's direct shareholding in Haizhengbri decreased from nearly 100% to 42%, which is no longer included in the scope of the company's consolidated statements.
Comments:
The introduction of war investment starts, which is beneficial to the long-term development of Haizheng Borey.
Haizheng Borey is a monoclonal antibody platform company formed by Haizheng Pharmaceutical Co., Ltd., which integrates Taizhou and Fuyang McAb assets and Shanghai Baiying sales team.
The company focuses on the field of autoimmune diseases and tumors and is currently working on more than 20 biomedical products. The pre-investment valuation of Haizheng Barey is not less than 5.6 billion yuan, which is in line with expectations. With the volume of products listed on the market and the continuous progress of research projects, the valuation of Haizheng Barey will still be gradually improved in the future. We believe that the benefits of this equity transfer and capital increase to Haizheng Borey are mainly reflected in: 1) the company still has a number of projects under research, especially three varieties such as infliximab are currently in clinical III phase, and the cost is relatively large. The increase in capital can enhance the sustainability of R & D investment, ensure the rapid progress of clinical trials and R & D, and enhance competitiveness. 2) the transformation of Haizheng Barey from a single state-owned holding to strategic investor holding and state-owned equity participation will help to speed up the landing of the internal employee incentive plan and ensure the stability of the talent team; 3) after the completion of capital increase and transfer, the company is expected to launch listing plans on the Hong Kong Stock Exchange and Science and Technology Innovation Board, which is conducive to the revaluation of bio-drug assets as soon as possible.
The asset-liability ratio is expected to decline and profits are gradually released.
After the equity transfer of Haizheng Borey, the company can recover a large amount of cash, repay the debt, effectively reduce the asset-liability ratio, and at the same time reduce interest expenses and release profits. At present, the comprehensive financing cost of the company is maintained at about 5%. Assuming that all the cash received from the transfer of the old shares is used to repay interest-bearing liabilities, it can save 140 million yuan in financial expenses every year and increase net profit by about 120 million yuan, which is expected to be reflected in the performance in 2020. coupled with the injection of no less than 1 billion yuan into Haizheng Borey, the overall net profit of Haizheng is increased by more than 120 million yuan. After the introduction of the war investment, the listed companies still retain 42% of the shares of Haizheng Borey, and can continue to increase the profits of listed companies after realizing the profits of Haizheng Burui in the future.
Valuation and investment advice-the former king, the inflection point of history!
We expect that the equity transfer of Haizheng Borey will bring about 2 billion yuan in investment income for the company, considering that the one-time expenses such as asset impairment and suspension of R & D projects will still be included in 19 years, which will reduce the profit for 19 years, but solving the problems left over by history is conducive to the company's long-term development and profit release.
Since the beginning of this year, the company has accelerated the transfer of non-core assets, including the transfer of real estate, the introduction of non-core R & D subsidiaries into War Investment (Daoming Pharmaceutical) and capital reduction (Haizheng Xuantai), and the transfer of generic drug documents (Haizheng Xuantai). Focus on the three main industries of biopharmaceuticals, APIs and preparations. Since taking office, the new management of the company has focused on strengthening the internal management system, and now it has achieved initial results. The profit after 19Q1 deduction indicates that the company's business and management are expected to usher in a historic inflection point:
1) Hillhouse Capital optimized management after entering Hanhui, adopting the mature CSO model through the introduction of varieties to continue to grow, Hanhui pharmaceutical profits are expected to grow rapidly in the follow-up; 2) the value of the biopharmaceutical sector is seriously undervalued. After the expansion of production, Adamumab has been reported for production and is expected to be approved in Q4 in 190.A number of biological drugs have entered the clinical III phase, which is close to the harvest time. 3) the clinical data of the chemical innovative drug Haize Maibu III phase is good, has been declared for production and has been included in the priority review. 4) the number of generic drug approvals is large, and there is no stock, and the production capacity is large. If we can grasp the national collection and acquisition policy, we can give full play to the advantages of the integration of API preparations, and are expected to make full use of fixed assets and cover depreciation expenses. 5) in the future, the company will continue to reduce unnecessary construction projects and improve R & D efficiency, dispose of idle assets / non-core projects and introduce war investment to recover cash, highlight the main industries such as biopharmaceuticals, preparations and APIs, and strengthen the construction of internal control system. It is expected that the company's subsequent debt ratio-financial expenses are expected to gradually decline, production / management costs continue to reduce, and profits will be gradually released.
Haizheng Pharmaceutical Company has a reasonable valuation of 17 billion yuan in 19 years (Hanhui 7 billion + biological drug 7.5 billion + chemical drug-1 billion + raw material drug 3 billion + commercial 500 million). Where:
1) Hanhui Pharmaceutical 7 billion: the 20-year net profit is estimated to be 661 million yuan, an increase of 25%, 22%. Haizheng Pharmaceutical holds 51% equity, and the net profit of equity is 337 million yuan. Based on 20 times PE in 19 years, the corresponding valuation is 7 billion yuan.
2) Biopharmaceuticals 7.5 billion: Haizheng Borui is valued at 5.6 billion yuan + Haisheng Pharmaceutical Co., Ltd. is valued at 1.9 billion yuan, all of which are valued at the primary market price.
3) Chemical drugs-1 billion: conservative valuation of chemical drug assets 5 billion (product line valuation + asset valuation based on fixed assets), deducting liabilities of 6 billion (caused by investment in fixed assets),-1 billion valuation: existing varieties still have great potential for growth of 200 million net profit in 18 years, more than 50 generic drug varieties are reported to produce, covering large varieties, collecting in beneficiary countries, and 15 innovative drugs are being developed. Among them, Haize Maibu III clinical data is good, years of research and development investment results began to show, in the research product echelon (generic drugs, innovative drugs) is good, coupled with fixed assets investment of 5 billion, a total conservative valuation of 5 billion yuan Chemical drug debt is estimated at 6 billion, after deduction,-1 billion valuation.
Subtraction is being done: selling approval documents and selling fixed assets.
4) API 3 billion: net profit of 2000-30 million yuan in 2017. FDA and the European Union banned before the normal net profit of more than 300 million yuan, the United States market has been lifted in June 17, sales gradually resumed, the company is currently actively opening up the Japanese market, high gross margin regulatory pharmaceutical market revenue will increase profitability. At the same time, the company is increasing the development of the domestic market and undertaking CMO business, which will become a new growth point. According to 10 times PE, the valuation is 3 billion yuan.
5) Pharmaceutical business 500 million yuan: the net profit in 2018 is 31 million yuan, which is expected to maintain steady growth and a reasonable valuation of 500 million yuan.
It is expected that the real performance in the past 20 years will begin to be fully reflected and the inflection point will be established. Assuming that the transfer / capital increase of the old shares of Haizheng Borui is completed within the year and the investment income is confirmed, the company is expected to realize the annual net profit of 1.022 billion yuan, 309 million yuan and 525 million yuan respectively in 19-20-21, and the EPS is 1.06,0.32 yuan and 0.54 yuan respectively. The company ushered in the management-operation double historical inflection point, the current market capitalization is less than 10 billion yuan, undervalued, 19 years reasonable valuation of 17 billion yuan, maintain the "buy" rating.
Risk tips: the risk of rapid and comprehensive promotion of national collection; management is not straightened out; depreciation of fixed assets & excessive financial expenses affect performance; public listing to increase capital and shares and old shares have not been delisted.