Event: the company released its annual report in 2016. during the reporting period, the operating income reached 3.6868228 billion yuan, an increase of 11.64% over the same period last year. The deduction of non-net profit belonging to shareholders of listed companies was 367.8461 million yuan, an increase of 114.74% over the same period last year. At the same time, the company released its quarterly report for 2017, with operating income of 930.9476 million yuan during the reporting period, an increase of 26.37% over the same period last year. Non-net profit belonging to shareholders of listed companies was 93.3505 million yuan, an increase of 17.88% over the same period last year.
The proportion of medical service income has increased significantly, and the layout is progressing smoothly: in 2016, the medical services sector achieved business income of 495.8645 million yuan, accounting for 13.45% of business income, an increase of 5.56 percentage points over the previous year. During the reporting period, the company acquired controlling interests in Chaoyang Hospital Management Company, Deyao Medical, Nanjing Ruike and Shanghai Huajian; newly established Guizhou Oncology Doctor Group, Harbin Medical Investment, Anhui Oncology Medical treatment, Anhui Oncology Doctor Group, Hangzhou Yihan, Tianjin Aikang Medical, Hunan Oncologist Group, Sichuan Hanbo Ruide, Liaoning Aikang Oncologist Union. At present, the company has three hospitals, including Guannan Hospital, Chaoyang Hospital and Bijie Hospital, with 1380 approved beds, 27 oncology treatment center projects and 6 controlling shares of oncologist groups. It is expected that oncology medical services will continue to expand nationwide in 2017, and the proportion of income from medical services will further increase.
The net interest rate increased, and the profit improved significantly: the net interest rate in 2016 was 10.7%, an increase of 4.86 percentage points over the previous year. During the reporting period, the expenses were well controlled, the sales expenses decreased by 10.16% compared with the same period last year, and the sales expense rate dropped from 61.91% to 49.82%. The expense rate continued to decline in the first quarter of 2017, down 7.99 percentage points from the same period last year. This trend is expected to continue throughout the year, and net profit is expected to rise further.
Benefiting from the adjustment of the health insurance catalogue, the prescription drug sector is expected to return to the fast track of growth: four new products (Ai Yu capsule, Liqi Huoxue dropping Pill, Dan Deng Tongnao dropping Pill, Gynecological Tiaojing dropping Pill) in the new national health insurance catalogue in 2017. Lobatin removed the restriction that "other platinum drugs are ineffective or intolerable", and Aidi injection was not transferred under the pressure of the traditional Chinese medicine injection industry. The company has been ploughing tumor drugs for many years, and the terminal data in 2016 show that the income of Lobatin, Ai Yu capsule, Aidi injection and compound Mylabris capsule has reached 2 billion yuan. The sales management team is experienced and has established a sales network all over the country. We expect that the products related to this health insurance catalogue are expected to be released quickly.
Investment advice: we expect the company's income to grow by 23%, 20% and 12% respectively from 2017 to 2019, and net profit to grow by 34%, 23% and 19% respectively. To maintain the Buy-An investment rating, the 12-month target price is 25 yuan, which is equivalent to the dynamic price-to-earnings ratio of 38x31xjing26x from 2017 to 2019.
Risk hint: the sales of products are not up to expectations, and the promotion of medical services is not up to expectations.