Rapid growth in performance in 2016
The company announced its 2016 annual report: revenue of 881 million yuan, up 12.96% year on year; Gimu's net profit was 165 million yuan, up 111.36% year on year; Gimu's net profit after deduction was 161 million yuan, up 112.40% year on year, EPS 0.39 yuan, in line with previous performance forecasts. The controlling shareholder has proposed a profit distribution plan of 10 to 10 to 1.5 yuan in 2016. The majority shareholders and directors and supervisors have promised not to reduce their holdings within 6 months.
Revenue structure was optimized, gross margin increased significantly
By business, the main traditional Chinese medicine formulation business continued a good growth trend, with revenue of 260 million yuan, an increase of 18.29%, and gross margin increased by 1.40 pp. Judging from the parent company's profit statement, the profit growth rate of traditional Chinese medicine preparations is expected to exceed 50%; the revenue of the chemical pharmaceutical intermediates business surged 123.43% to 290 million yuan due to the combined factors of Dongli's enterprise management. At the same time, due to the high gross margin of Dongli's enterprise management products, the gross margin of the business increased 17.5 PP; the chemical raw materials and intermediates business was relatively stable, with revenue of 204 million yuan, an increase of 10.20%, and gross profit margin of 10.20% An increase of 3.52 pp; the revenue of the Chinese herbal medicine and Chinese medicine tablets business fell 56.9% to 94 million yuan due to the integration and adjustment of Bohetang (Bozhou) Company. Overall, due to the optimization of the revenue structure (the increase in the share of revenue from high-margin Chinese medicine preparations and Dongli enterprise management intermediates, and the reduction of the low-margin trade and tablet processing business of ordinary Chinese herbal medicines), the company's overall gross margin level increased by 10.55 pp. to 49.65%. Sales expenses increased steadily during the reporting period, management expenses increased by 33.80% due to increased R&D and consolidation factors, and financial expenses continued to have a net inflow.
Traditional Chinese medicine preparations will lead the company's continued development, and sulfur-free tablets will create new performance growth points
The upward shift in the overall price system of the company's main varieties, such as Wang's Baochi Pills and Ji Desheng Snake Tablets, is progressing steadily. Other varieties, such as Zhengchai Hudrink Granules, etc. are also continuing to expand the blank market. Complementing the implementation of marketing reforms, it is expected that the traditional Chinese medicine formulation sector will achieve rapid compound growth of around 25% in the next 2-3 years; the company focuses on “authentic medicinal materials+sulfur-free tablets” and invests in Longxi Baohetang and Bohetang (Bozhou) Company into the field of sulfur-free tablet processing. Currently, the infrastructure installation and equipment installation of the Longxi Baohetang workshop has been completed The Bohetang Bozhou Phase II project is nearing completion. In the future, authentic medicinal herbs and sulfur-free tablets are expected to become important profit growth points for the company. They are also of great significance for the company to lay out the entire traditional Chinese medicine industry chain and consolidate its main traditional Chinese medicine business.
Terminate the acquisition of Alpha Pharmaceuticals without changing the development strategy of Outreach
Due to Alfa Pharmaceutical's fire last year, there was a gap between production and operation and the company's performance, and the company terminated the acquisition during the reporting period. Subsequent companies will continue to search for high-quality targets in the fields of traditional Chinese medicine, chemicals, biopharmaceuticals, and even big health. There are continuing expectations for extended mergers and acquisitions, and the company's development will continue to be promoted through endogenous outreach.
Annual performance continued to grow at a high rate, maintaining the “buy” rating
We expect the company's 2017-2019 EPS to be 0.52, 0.66, and 0.80 yuan respectively, and the corresponding PE to be 44, 35, and 29 times respectively. We are optimistic that the company will continue to grow and maintain its “buy” rating.
Risk warning: M&A progress falls short of expectations, marketing reforms fall short of expectations, sulfur-free tablets fall short of expectations