Summary of the report:
Boji Pharmaceutical released its 2017 annual report: operating income reached 131 million yuan, an increase of 81.22% over the same period last year; net profit was-24.49 million yuan, and non-net profit was-26.48 million yuan, which decreased by 1273.34% and 443.79% respectively over the same period. The company also released its quarterly report for 2018: operating income was 31.64 million yuan, an increase of 207.35% over the same period last year; net profit was 5.09 million yuan, and non-net profit was 4.92 million yuan, significantly reversing losses, up 273.47% and 254.48% respectively over the same period last year.
The company came out of the shadow of "722" and the performance inflection point appeared. The texture of the company belongs to the first echelon of domestic CRO enterprises. in "722 Clinical Verification", the company withdraws / disapproves more than 30 projects, mainly because the company undertakes the largest number of clinical trials, but the proportion of withdrawal / disapproval is still at a low level in the industry and has a good reputation in the industry. After the "722" incident, with the recovery of the project schedule and the reduction of low gross margin orders, the company's performance gradually recovered. 2018Q1 revenue increased by 207.35% compared with the same period last year, achieving a net profit of 5.09 million yuan.
The clinical research business recovered obviously, and the overall gross profit margin increased significantly. In terms of business segment, the company's clinical research service income was 93.84 million yuan, up 180.8% from the same period last year, with a gross profit margin of 14.48%, which decreased by 14.47pct compared with the same period last year. The decrease in gross profit margin was mainly due to the increase in the cost of clinical research projects after "722", with a relatively large proportion of low gross margin orders; the income from preclinical research services was 23.27 million yuan, down 13.87% from the same period last year, and the gross profit margin was 54.99%, which decreased 4.88pct compared with the same period last year. The revenue of preclinical independent research and development was 5.47 million yuan, up 65.71% from the same period last year, and the gross profit margin was 83%, which decreased by 17pct compared with the same period last year. Preclinical research services and preclinical independent research and development were affected by clinical research services. The company settled some low gross margin orders at the end of 2017, and the company's overall gross profit margin increased from 27.39% to 55.23% in the first quarter of 2018.
There are plenty of orders on hand, and the order structure is optimized. Benefiting from the rapid development of domestic innovative drugs and the evaluation of imitation consistency, the prosperity of the industry continues to improve. After the "722" incident, orders gathered to the leading companies, and the company's orders increased significantly. The amount of new contracts added by the company in 2017 was about 433 million yuan, an increase of about 191 percent over the same period last year. The amount of unrecognized revenue from the contracts executed at the end of the year was about 650 million yuan, of which the consistency evaluation of new contract orders was nearly 170 million yuan. The new contract amount of Q1 in 2018 is about 130 million yuan. According to our estimation, the total order on hand of the company at the end of the first quarter is about 700 million yuan. Considering that the new orders received by the company after 2017 are mainly innovative drugs and BE trials, with a high gross profit margin, the order structure is greatly optimized compared with the "old three" orders accounting for 80% in 2016. On-hand orders are the leading indicators of CRO's performance in the next three years, and abundant on-hand orders provide a strong guarantee for the company's future performance growth.
Industrial funds help to extend mergers and acquisitions. In 2017, the company acquired HPC, a leader in international pharmaceutical registration consulting services, which greatly enhanced the company's ability of international pharmaceutical registration and provided a good foundation for subsequent foreign orders. In addition, the company has two major M & A funds: Wuming Innovation and Silicon Valley Paradise Boji MAH Select Pharmaceutical, with Boji Pharmaceutical accounting for 10%. There are many subbids for M & A funds. In the first quarter of 2018, Wuming Innovation Industry Fund bought a 51% stake in Guoxin Pharmaceutical in the form of cash, aiming to strengthen the clinical phase IV business. In the follow-up, the company is expected to continuously improve the CRO industrial chain and regional layout through its M & A funds, providing significant increments for the company's performance.
For the first time, the company is given a "buy" rating: the company's net profit from 2018 to 2020 is expected to be 45 million, 84 million and 121 million respectively, with a corresponding EPS of 0.34 yuan, 0.63 yuan and 0.90 yuan, and a corresponding PE of 71x, 38x and 27x, respectively. Considering that the company has plenty of orders on hand and the possibility that its performance will exceed expectations, it will cover it for the first time and give it a "buy" rating.
Risk tips: the company's business recovery is not as expected, new orders are not as expected, and so on.