Main points of investment
The company's 2011 performance was lower than market expectations: according to the annual performance report released on March 12, 2011, the company achieved operating income of 2.196 billion yuan, operating profit of 135 million yuan and net profit of 130 million yuan belonging to the parent company in 2011. the year-on-year increase of 10.63%, 280.22% and 244.89% respectively, the company's overall gross profit margin in 2010 was 21.56%, 5.21 percentage points higher than in 2009, resulting in profit growth much higher than income growth. The company's EPS in 2010 was 0.22 yuan, which was lower than the overall market expectation.
From the perspective of sub-products, the main reasons why the company is lower than market expectations are:
1. The growth rate of sales of the whole antibiotic preparation is nearly 8 points lower than our previous forecast of 20%. Although the company has increased its gross profit margin by 0.3% through product structure adjustment, it is still lower than the average growth rate of the industry; with the state's control of the misuse of antibiotics, we speculate that the growth rate of preparation business is unlikely to increase significantly in the future, and the growth rate is expected to remain at about 15%.
2. The semi-synthetic API is basically in line with our expectations, and it is also the main reason why the company's performance increased by 244% in 2010, mainly due to the continued high price of 7-ACA and the significant reduction in the cost after the company realized the enzymatic method. The gross profit margin of semi-synthetic API reached 12.20% in 2010, compared with 0.34% in 2009. We expect the 7-ACA price to decline in 2011. At the same time, with the rise in fuel costs, the gross profit margin of the company's business in this sector is at risk of decline. Although the company expanded its 7-ACA production in the fourth quarter of 2010, it is expected that the overall gross profit will be limited. We expect the 7-AC price to fluctuate in the range of 750-800 yuan in 2011, and the gross profit margin may fall to less than 20%. However, due to the company's production expansion in the fourth quarter, we expect gross profit growth of about 40%.
3. The growth rate of veterinary antibiotics is basically consistent with our previous forecast of 15-20%. At the same time, the gross profit margin has continued to rise in the past three years, which in 2010 is 3 percentage points higher than that in 2009. With the continuous regulation of the market, we expect that there is room for improvement in the future gross profit margin. It is expected that the growth rate of veterinary antibiotics will remain in the range of 15-20% in the future.
From the perspective of products, at present, the market for tylosin is in short supply, most of the manufacturers are out of stock, and orders are already full, and they will not be available until March or April at the earliest. In the past, when there is a change of season from winter to spring, the demand increases and the price changes. The company is currently one of the largest manufacturers of tylosin in China. In 2011, the production capacity of tylosin series is 800 tons. The increase in price is expected to lead to an increase in the overall gross profit margin of veterinary antibiotics, and the gross profit margin is expected to reach 20% in 2011.
Strategically, the company began to adjust its structure and mode in 2010, withdrawing from production products with high consumption, weak advantages and poor docking with the market, and adjusting and arranging products with high-tech content to meet the drug needs of patients. The leading products penicillin semisynthetic drugs and cephalosporins antibiotics form their own systems from intermediates to raw materials and preparations, which gradually enhance their own competitive advantage. At the same time, in order to achieve a strong combination in the market, the company has also established industrial and commercial strategic partnerships with the top 20 domestic pharmaceutical businesses, such as Shanghai Pharmaceutical, Nanjing Pharmaceutical, Sinopharm Group, Hubei Kyushu Tong, etc. so that the proportion of strategic cooperation business accounts for more than 30%, effectively driving the rapid development of antibiotic business; we expect the advantages of cooperation to be further reflected in 2011.
From the perspective of a single quarter, the company's revenue in the fourth quarter was 579 million yuan, an increase of 4.51 percent over the same period last year, an increase of 13.65 percent over the previous year, and an EPS of 0.05 yuan. As the company withdrew 16.88 million yuan in the four-quarter meter, it indirectly lowered the level of net profit in the fourth quarter. Due to antibiotics, we predict that the company will still be able to enjoy the advantage of industry cycle in the first quarter, and EPS is expected to reach 0.1 yuan.
We maintain the previous profit forecast of the company, and estimate that the net profit of the company belonging to the parent company in 2011-13 is 171 million yuan, 204 million yuan and 243 million yuan respectively, an increase of 31.94%, 19.38% and 19.24% respectively over the same period last year, and the corresponding EPS for 2010-12 years is 0.29,0.35,0.42 yuan respectively. Continue to maintain the "hold" investment rating.