In 2012, the company achieved operating income of 1.117 billion yuan, up 11.97% from the same period last year; operating profit of 358 million yuan, down 12.46% from the same period last year; net profit belonging to the owner of the parent company was 297 million yuan, down 14.11% from the same period last year; and basic earnings per share was 1.63 yuan. The distribution plan is 8.00 yuan (including tax) in cash for every 10 shares.

The income of the main business increased steadily and the gross profit margin increased. During the reporting period, the company acquired the central pharmaceutical company, a subsidiary under the same control. After the forward adjustment, the company's operating income increased by 11.97% compared with the same period last year. If the influence of the central pharmaceutical industry is eliminated, the company's operating income in 2012 was 1.117 billion yuan, an increase of 15.33% over the same period last year. Revenue from tablets and injections, the company's two largest product types, increased by 18.93% and 18.52% respectively compared with the same period last year. Affected by the rapid growth of tablets with a gross profit margin of 69.37%, the company's comprehensive gross profit margin reached 61.65%, up 3.55 percentage points from the same period last year.

Non-net profit deducted also increased steadily. The company's sales expenses rose 1.49 percent year-on-year, while the financial expense rate rose 1.77 percent year-on-year due to a large amount of cash expenditure, resulting in a 2.48 percent year-on-year increase in the expense rate to 28.33 percent. As the company transferred 25% of the shares in Tianjin Wutian in 2011 to recognize 98.4824 million yuan in investment income, but there was no such impact during the reporting period, the operating profit and the net profit belonging to the owner of the parent company decreased by 12.46% and 14.11% respectively compared with the same period last year, while after deducting non-recurrent profit and loss, the net profit belonging to the owner of the parent company was 277 million yuan, up 18.58% from the same period last year.

The scale of the project under construction is large, and the capacity bottleneck needs to be solved urgently. The company's existing construction projects are being promoted at the same time. It includes 832 million yuan investment in the construction of subsidiary COVID-19 Pharmaceutical API and preparation project, 845 million yuan investment in the construction of new production base project, and 269 million yuan investment in Tianjin biochemical Pharmaceutical 23-valent pneumococcal polysaccharide vaccine project. Vaccine and other projects research and development, construction cycle is long, approval and marketing effect is not clear, whether the progress can meet expectations is still uncertain, and more additional investment also affects its profit expectations. The company's current production capacity is relatively tight, if the COVID-19 project capacity can not be put into use as soon as possible, the company's income and profit growth will be restricted.

The products are of high quality and new product development needs to keep up. The company has "Shoubishan", "Meifu", "Changmei" and other high-quality varieties involved in hypotension, antifungal, ulcerative colitis, asthma and other fields, among which the market share of indapamide tablets has always been absolutely dominant. Over the years, the market share has exceeded 70%, ranking first in the country, and on this basis, the company continues to develop a variety of dosage forms and formulations of compound preparations. Firmly maintain the leading position of market share. The company has a wide variety of high-quality products, high market acceptance, and stable and rapid growth of business. However, in the development of new products in areas other than antihypertensive drugs, there is still a lack of heavyweight varieties in addition to the less-than-ideal pneumonia vaccine project.

Earnings forecast and rating: regardless of the expected capacity release of the company's projects under construction, we expect the company's EPS from 2013 to 2014 to be 1.95 yuan and 2.25 yuan, respectively, based on the latest closing price, the corresponding dynamic price-to-earnings ratio is 18 times and 16 times, respectively, the valuation is reasonable. The company's product market share is stable, there are many high-quality products, and the pharmaceutical business is growing steadily; the capacity bottleneck needs to be solved urgently, and the progress of capacity release of new APIs and preparations is more critical. Combine the above factors to maintain the company's investment rating of "increasing holdings".

Risk hints: 1) the risk of lower gross profit margin caused by the sharp reduction in general drug prices; 2) the risk that the progress of projects under construction is not as expected; 3) the risk that the effect of new drug research and development and market promotion is not up to expectations; and 4) the risk of capacity bottlenecks that cannot be solved in the short term.