Main points of investment
Event: the company issued a major asset sale and issuance of shares to buy assets and related party transactions plan. It is proposed to sell all assets and liabilities except 7.069 million restricted shares of Dongling International to Jianfeng Group in cash, and to issue shares to purchase 96.59% of Chongqing Pharmaceutical shares, with a preliminary consideration of 6.698 billion yuan.
The Group has injected high-quality assets and comprehensively transformed the circulation of medicine. 1) this reorganization is the internal asset integration of the Chemical Medicine Group, and the main business of the company has changed but does not involve backdoor borrowing; in this scheme, all the original chemical assets of the company are sold, and its debts and personnel are arranged by Jianfeng Group; when Chongqing pharmaceutical assets are injected, it is planned to transfer industrial assets such as Corey Pharmaceutical and Heping Pharmaceutical Agreement to Chemical Pharmaceutical Group, that is, the pure pharmaceutical circulation assets injected into listed companies. 2) in the plan, Chongqing Pharmaceutical's 96.6% stake is priced at 6.7 billion yuan, and 1.13 billion shares are expected to be issued at a price of 5.93 yuan per share. Based on the suspended share price, the company's current market capitalization is about 12.9 billion. And in this plan, it is agreed that the chemical medicine group, the major shareholder, will be locked for three years, while the other shareholders will be locked for one year, which shows full confidence in the long-term development of the enterprise. 3) the holding proportion of the controlling shareholder chemical medicine group will be increased. After this transaction, the proportion of shares held by Chemical Medical Group and its holding Jianfeng Group will increase from 47.1% to 54.8%. 4) Chongqing Pharmaceutical has promised in this plan that its performance for 16-18 years will be 450 million yuan, 550 million yuan and 620 million yuan respectively, and according to the diluted impact after the completion of the reorganization, the price-to-earnings ratio for 2016-2018 will be about 29 times, 23 times and 21 times, respectively, which is still lower than the average level of comparable listed companies in the same industry. We believe that the valuation of this acquisition is reasonable, and the plan fully takes into account the interests of minority shareholders.
Chongqing Pharmaceutical is the leading circulation leader in southwest China, with obvious advantages in hospital pure sales and drugstore retail area. 1) the industry is optimistic.
In 2015, the total amount of the national drug circulation market was about 1.6613 trillion yuan, which increased by 10.2% year on year after deducting incomparable factors. We continue to be optimistic about the future development of the pharmaceutical circulation industry: a, benefiting from the trend of population aging and urbanization, the increase in drug demand will stimulate the development of the circulation industry; b, the two-vote system promotes the continuous increase of industry concentration, which is good for national and regional leading enterprises. C, policies drive industry innovation, accelerate the transformation of enterprises from distribution to pharmaceutical supply chain service providers, and enhance the profitability of the industry; 2) there is still room to improve profitability. The annual income and net profit of Chongqing Pharmaceutical in 2015 are about 16.5 billion yuan and 380 million yuan respectively, the level of net profit margin is higher than the industry average, but compared with listed companies, it is still below the median level, and there is more room for improvement in the future. 3) Regional distribution leader. The net sales and distribution income of Chongqing Pharmaceutical in 2015 is about 12 billion yuan and 3.3 billion yuan respectively. At present, the company serves more than 8300 customers, including about 6400 hospitals and other medical institutions. Among them, there are 512 secondary and above medical institutions, and the customer network has covered almost all secondary and above medical institutions in Chongqing, with obvious regional advantages. 4) retail drugstores have a bright future. Chongqing Pharmaceutical's retail revenue in 2015 was about 1.2 billion yuan. Heping Pharmacy has 697 retail pharmacies, including 559 directly operated stores and 138 franchise stores, mainly covering Chongqing and other counties and cities in Sichuan. The company's retail business operates about 75000 standards, and actively carries out B2C business through the Peace Pharmacy Network and the Heping Da Pharmacy flagship store of Tmall Pharmacy.
Profit forecast and investment advice. Leaving aside the asset exchange for the time being, it is estimated that the EPS of the company from 2016 to 2018 will be-1.10,0.3,0.01 yuan respectively, which will correspond to 645 times of the dynamic PE in 2018. If asset replacement is considered, with reference to Chongqing Pharmaceutical's performance commitment, the corresponding price-to-earnings ratios for 2016-2018 are expected to be 29 times, 23 times and 21 times, respectively. We are optimistic that this asset restructuring will improve the company's fundamentals, and there are many catalytic factors in the follow-up stock price. Give the company a "buy" rating.
Risk tips: asset restructuring progress or lower-than-expected risks, industry policy risks.