Key points of investment
The company is a leading company for corticosteroids and amino acid APIs. Through the acquisition of Jinyao Pharmaceutical, it has formed an integrated advantage in raw material preparation. The company's strategic direction has changed from “mainly APIs” to “placing equal emphasis on APIs and formulations”. By effectively integrating the company's resources and enhancing the company's comprehensive competitiveness in the corticosteroid and amino acid drug markets, it is expected that a specialty drug platform centered on corticosteroids and amino acid drugs will be formed in the future.
Prices of raw materials for steroid hormones have been picking up one after another. The current round of steroid price declines has continued for many years, and the profitability of enterprises is generally poor. After the reshuffle of the industry and the compression of environmental pressure, the relationship between supply and demand in the industry has improved. Moreover, the profitability of the entire industry has been weak or even at a loss for a long time, and there is little possibility of another price war in the short term. This round of price recovery is expected to maintain a long cycle, providing the company with greater profit flexibility.
Jinyao Pharmaceutical's injection has opened up the upstream and downstream of corticosteroids and amino acids at the industrial level to achieve integration of API formulations. Jinyao Pharmaceutical currently has highly competitive products such as hydrocortisone butyrate cream (eudrol), injectable methylprednisolone sodium succinate, pediatric compound amino acid injections, and peritoneal dialysis solutions. In terms of research and development, emphasis is placed on the layout of high-end formulations, and research and development focuses on topical medicines such as dermatology, ophthalmology, and respiratory medicine; new varieties of halometasone cream have great potential.
In the field of specialty formulations, the company will develop research and applications in one place in the future, and follow the path of domestic and international dual development. In 2013, Tianyao Co., Ltd. became the first pharmaceutical company in Tianjin to pass FDA certification. It has already applied for methylprednisolone tablets in the US. We expect approval in 2018. Currently, the US market for methylprednisolone tablets is about 200 million US dollars, and 6 generic drug companies have received approval from ANDA. We estimate that after sales stabilize, they are expected to contribute around 15 million US dollars of profit to the company. In the future, Tianyao Co., Ltd. is expected to have the ability to export oral pills and injections at the same time. There are still more than a dozen varieties in the R&D pipeline. It is expected that 3-4 varieties will be declared for the US ANDA every year in the future, and subsequent pharmaceutical exports will gradually be enriched.
Consistency evaluations have reshuffled the industry, and the advantages of API integration are expected to help companies seize competitive advantage. Consistency evaluation work for the two basic drug types, dexamethasone acetate tablets and prednisone acetate tablets, has begun. It is expected to be completed by the end of 2018, and progress is expected to lead. Both products, Tianyao Co., Ltd. have a very high market share. A total of 2.3 billion tablets were sold in 2016, but there are many competing manufacturers, so prices have remained very low. In the future, after supply-side reforms passed through consistency evaluations, market competition is expected to decrease, and there are opportunities for price increases in the future.
Profit forecast and valuation discussion: We expect the company's revenue in 2017-2019 to be 1,984 billion yuan, 2,208 billion yuan and 2,561 million yuan respectively, up 64.45%, 14.92% and 12.30%, respectively; net profit attributable to the mother in 2017-2019 was 116 million yuan, 157 million yuan and 195 million yuan respectively, up 82.11%, 35.20% and 24.02%, respectively. The company's current stock price corresponds to 34 times the 2018 PEE. Given that the company has plenty of room to develop specialty formulations, the profitability of APIs is at the bottom and is expected to show an inflection point. It is expected that the future will bring more room for growth through extended mergers and acquisitions and incentive improvements; the company's reasonable valuation range was 38-42 times PE in 2018, with a reasonable valuation range of 5.32-5.88 yuan, which was covered for the first time, giving an “increase in holdings” rating.
Risk warning: risk of API price fluctuations; risk of consistency evaluation not progressing as expected; risk of failure in new product development