Event
The company released semi-annual report, 2018H1 operating income of 1.576 billion, year-on-year + 24%, return to the mother net profit of 123 million, year-on-year + 284%.
Comment
1. Tylosin prices were low in the second quarter, driving down the single-quarter net profit of 2018Q2, which was 32 million, up 179% from a year earlier and down 64% from a month earlier. Single-quarter gross margin 29.8%, year-on-year + 4.5pct, month-on-month-2.1pct; net profit 5.1%, year-on-year + 1.6pct, month-on-5.8pct. The main reasons for the decline in performance compared with the previous quarter are as follows: 1) competitor Ningxia Teri resumed production, resulting in a month-on-month decline in the price of tylosin in the second quarter. According to the data of China Veterinary Drug Trading Network, the average price of tylosin 2018Q1 is 400yuan / kg,2018Q2 and only 350yuan / kg. 2) there was an influenza epidemic in the first quarter. There was a flu outbreak in January 2018, with 270000 cases in January alone. According to our calculations, the gross profit of 2018Q1 is 280 million, of which 170 million is the gross margin of human antibiotics, and 110 million is the gross margin of veterinary antibiotics, while in 2017, the gross margin of antibiotics for the whole person is 512 million, 2018Q2 gross profit is 208 million, of which human antibiotics is about 128 million, tylosin is 80 million.
According to the report, on August 18, 2018, the Ningxia government seized and shut down the fermentation tank at the Yongning plant of the industry leader Teri Pharmaceuticals, involving at least 5000 tons of production capacity of the plant, while the total production capacity of the whole industry was about 16000 tons, and nearly 1 stroke 3 production capacity was shut down. The current nominal capacity distribution is as follows: Teri's remaining capacity is about 4500 tons, Qilu Pharmaceutical is about 3300 tons, and Lukang Pharmaceutical is about 3000 tons. We estimate that at present, the actual effective production capacity of Lu Kang has accounted for more than 30%, and the industry pattern has undergone a sudden change.
3. It is optimistic that the quantity and price of tylosin in the company will rise, and the future performance can be expected after the closure of Teri in Ningxia, the major manufacturers have stopped quoting for tylosin, and the industry pattern has changed abruptly. We are optimistic that the price of tylosin will continue to rise in the future, and the gross profit margin of tylosin is expected to exceed 60%. In addition, the company plans to invest in three new veterinary API workshops with an investment of 276 million yuan. Optimistic about the company tylosin volume and price rise, we expect the company this year and next year to achieve a net profit of 30,000,000, corresponding to PE29.7/17.0 times, the first time to cover the overweight rating.
Risk hint: price increases fall short of expectations and macroeconomic fluctuations