Event

On April 21, the company announced its 2017 report: during the reporting period, the company achieved revenue of 1.083 billion, an increase of 25.51% over the same period last year; realized net profit of 202 million and 194 million respectively, up 61.35% and 64.42% respectively over the same period last year; and realized 0.38 yuan of EPS. Publish the profit distribution plan:

Pay out 1 yuan for every 10 shares (including tax). At the same time, the company announced its quarterly report of 2018: during the reporting period, the company achieved 319 million, an increase of 29.48% over the same period last year, and realized a net profit of 65 million deducted from non-return, an increase of 38.85% over the same period last year.

Main points of investment:

The preparation business bottomed out and rebounded, and the gross profit level increased significantly.

Sub-business plate: 1. The pharmaceutical manufacturing business achieved revenue of 461 million, up 15.08 percent over the same period last year; of which the revenue from chemical preparations was 430 million, up 14.4 percent from the same period last year, including 238 million from antibiotic preparations, up 27.91 percent from the same period last year; gross profit margin was 48.04 percent, up 19.82 percent from the same period last year; revenue from non-antibiotic preparations was 192 million, up 1.34 percent from the same period last year; gross profit margin was 69.67 percent, up 11.27 percent over the same period last year. During the reporting period, the company increased its marketing efforts, the company's products won the bid in 12 provinces, and entered the low-cost drug procurement in 17 provinces at the same time; at the same time, the company continued to optimize the product structure adjustment and strengthen the sales of the main varieties with high gross margin. The proportion of high gross margin products increased significantly, and the revenue growth rate and gross profit margin of preparation products increased significantly compared with the same period last year. The revenue of the API business reached 24 million, an increase of 37.2% over the same period last year.

The new peak exceeded the performance commitment, and the rapid growth of BE and listing re-evaluation business during the reporting period, CRO services business revenue was 620 million, an increase of 34.48% over the same period last year, contributing a net profit of about 140 million.

Of these, the preclinical CRO income was 434 million, up 13.72% from the same period last year, and the gross profit margin was 35.68%, slightly down 3% from the same period last year; the clinical CRO realized revenue of 186 million, a substantial increase of 134.89% from the same period last year, and a gross profit margin of 38.01%, up 8.69% from the same period last year. The main reason for the larger increase in clinical CRO income is that more BE projects and listing re-evaluation projects were undertaken during the reporting period. Since the acquisition, Shanghai New Peak, the main body of CRO business operation, has achieved 108 million and 145 million net profit deduction for the whole year of 2016 and 2017 respectively, exceeding the performance commitment. In 2017, the new peak revenue and non-deduction net profit accounted for 58% and 75% of the company, respectively. With the rapid development of CRO business in recent years, the contribution of CRO business to the company's overall performance will be further increased.

Innovate CRO operation mode, build CRO full-service chain service capability Shanghai Xinfeng, the main operator of CRO, with high-quality and professional management and operation team, creatively developed GRDP management system, integrated domestic and foreign R & D resources, created an integrated public service platform, participated in the preparation and construction of GLP alliance, GCP alliance and other platforms, and promoted the close cooperation of "industry-medicine-research". At the same time, it has accumulated a large number of third-class hospitals, clinical experts, technology platforms, pharmaceutical enterprises, medical institutions, research institutions and other channels and R & D resources, forming a CRO full-service chain service capability that can cover new drug research and development and all major stages after product listing. In the next few years, the company's CRO business will continue to benefit from the growth of BE business brought about by the development of domestic innovative drug industry and generic drug consistency evaluation. It is expected that the new peak non-post-deduction net profit in 2018 will increase by more than 25%.

Profit forecast and investment advice:

It is estimated that the return net profit of the company in 18-19 is 269 million and 363 million respectively, and the EPS is 0.50,0.68 yuan respectively, and the share price PE before the corresponding is 39 times and 29 times respectively. It is optimistic that the new peak innovative CRO business model is expected to maintain high growth in the next few years. It is covered for the first time and rated as "overweight".

Risk factors: the risk of CRO business expansion falling short of expectations, and the risk of intensified competition in the CRO market