Incident: The company released its 2019 quarterly report, achieving total operating revenue of 8.245 billion yuan, an increase of 23.84% over the previous year; the net profit of the mother was 409 million yuan, a decrease of 6.46% over the previous year; after deducting non-net profit of 409 million yuan, an increase of 7.55% over the previous year.
Comment:
The growth rate increased markedly in the first quarter, and after deducting non-net profit growth picked up. In the first quarter of 2019, operating income increased 23.84% year on year, net profit after deduction increased 7.55% year on year. The revenue growth rate increased significantly with each quarter of 2018, and the growth rate of deducted non-net profit picked up compared to the second half of 2018. The growth rate of net profit after deducting non-net profit was faster than that of the mother's net profit due to the sale of Shanghai Pukang in the same period last year of more than 50 million in investment income.
Looking at sectors, we expect commercial revenue to increase by about 30%, mainly due to the elimination of the two-ticket system factor, the company's Dotong network strengthening strategy and expanding the scale of business through mergers and acquisitions and development; international trade revenue will increase by about 30%, mainly due to the rapid development of various sectors such as rolling development of overseas projects, medical devices, and natural medicine exports. Industrial income was basically the same. After deducting the investment income from the sale of Shanghai Pukang in the same period of the year, actual profit increased by about 15%. In the industrial sector, atorvastatin, rosevastatin, etc. were affected by policies such as volume procurement. Sales declined, revenue from the API sector declined, and the discontinuation of production in Shanghai led to a decline in blood products revenue.
The company's gross profit margin in the first quarter of 2019 was 20.93%, down 2.4 percentage points from the previous year; the sales expenses ratio was 10.50%, down 0.93 percentage points from the previous year. The gross margin and sales expense ratio declined at the same time, mainly because the growth rate of the industrial sector was slower than that of commerce and international trade, which led to a decline in gross profit margin and sales expenses ratio. The management and R&D expenses ratio was 2.48%, up 0.24 percentage points from the previous year; management expenses increased 44.82% over the same period last year, mainly due to the increase in newly merged enterprises and Shanghai Xinxing's production shutdown expenses. The financial expenses ratio was 0.45%, up 0.22 percentage points year on year, and financial expenses increased 142.16% year on year, mainly due to the increase in interest on loans in the first quarter compared to the same period last year. The net inflow of operating cash flow was 1,394 million yuan, similar to the same period last year. It is mainly related to the company's cash management policy. Every year in the first quarter of every year, there is a large cash outflow.
Influenced by medical reform policies such as “volume procurement”, the company actively promoted transformation. The company's industrial sector is greatly influenced by policies such as volume procurement. The company adjusts its layout structure around the “One in Two Wings” strategy, combines resources from various sectors, improves product groups, and enhances marketing capabilities. The company has always followed the “endogenous and external extension” two-wheel drive model. Internally, we will continue to push forward the reform of the sales system, optimize business processes, adjust the business structure, and at the same time increase the promotion and development of international business. On the other hand, enhance profitability and R&D capabilities through mergers and acquisitions. In the future, we will focus on observing changes in the company's product line and the strengthening of R&D capabilities.
Profit forecast and valuation: We expect that in 2019-2021, the company's revenue will be 320.35, 330.25 and 34.103 billion yuan respectively, up 3.32%, 3.09% and 3.27% year-on-year; the net profit of the mother will be 1,278 billion yuan, 14.14 and 1,551 billion yuan, up -17.24%, 10.66% and 9.64% year-on-year. Currently, the company's stock price corresponds to the 2019-2021 PE of 12 times, 11 times, and 10 times. Since the company was affected by policies such as volume procurement in the short term, its profitability was damaged, and adjustments and transformation were ongoing, so the downgrade of the rating was an increase in holdings.
Risk warning: policy risks such as volume procurement; risk that the product cannot pass the consistency evaluation