Events:

The company released semi-annual report 2019: in the first half of 2019, the company achieved income of 3.1 billion yuan, an increase of 15.34% over the same period last year; net profit of 147 million yuan, an increase of 19.54% over the same period last year; and EPS of 0.24 yuan per share.

Main points of investment:

The strategic variety continues to grow rapidly, and the performance is in line with previous expectations.

The company's performance is in line with our expectations. The revenue of Q2 in 2019 was 1.482 billion yuan, an increase of 16.67% over the same period last year, an increase compared with Q1 (14.14%). According to the H1 category in 2019, the revenue of APIs was 1.392 billion yuan, an increase of 18.62% over the same period last year; the revenue of preparation products was 1.404 billion yuan, an increase of 22.40% over the same period last year, of which the sales income of the top 10 strategic varieties in 2019 increased by 33.6% over the same period last year. Among them, the sales revenue of rabeprazole sodium increased by 22.07% over the same period last year, and the sales revenue of glimepiride increased by 27.33%. In 2019, the gross profit margin of H1 company continued to maintain a high level, up 3.53 percentage points from the same period last year to 31.39%, slightly lower than Q1. In terms of period expense rate, H1 was 24.18% in 2019, an increase of 3.53% over the same period last year, mainly due to an increase of 71.71% in market development fees and 53.76% in R & D expenses over the same period last year.

The modern medical center is progressing smoothly, and the consistency evaluation has entered the harvest period.

The International Cooperation Center of Modern Medicine (Phase I) successfully passed the domestic GMP certification and British MHRA audit, obtained the qualification to enter the high-end market of the European Union, and continued to promote the company's internationalization strategy. In terms of consistency evaluation, glimepiride passed the consistency evaluation in May 20190. cetirizine hydrochloride became the first approved enterprise in China in August, and nine other product application materials have been submitted to the National Drug Review Center for approval, indicating that the company's consistency evaluation work has entered the harvest period.

Maintain the recommended rating.

We maintain the previous forecast and conservatively estimate that the company's EPS from 2019 to 2021 will be 0.46,0.52 and 0.60 yuan respectively, with a valuation of 15 times, 13 times and 11 times respectively. Considering the stable growth of the company's performance, the internationalization strategy has further opened up room to maintain the "recommended" rating.

Risk hint

The API boom is declining, the market sales are not up to expectations, and the cost growth is faster than expected.