Main points of investment

Items:

According to the 2019 annual report, the company achieved an income of 925 million yuan, an increase of 29.87% over the same period last year, a net profit of 97.26 million yuan, an increase of 16.86% over the same period last year, and a net profit of 95.21 million yuan, up 16.70% over the same period last year. The company's performance is basically in line with expectations.

The performance distribution plan for 2019 is 2.5 yuan for every 10 shares.

At the same time, the company released a forecast for the first quarter of 2020, which is expected to achieve a net profit of 15.59 million yuan to 17.82 million yuan, down 20% from the same period last year.

Peace viewpoint:

The pharmaceutical intermediate plate made a profit in the year when it was put into production, but affected the overall gross profit margin and expense rate performance: in 2019, the company's income was 925 million yuan (+ 29.87%), and the net profit was 97.26 million yuan (+ 16.86%). The reason why the income growth rate is higher than the profit growth rate is that the pharmaceutical intermediate business income increased by 97.18 million yuan in 2019, and the gross profit margin of this business is only 17.03%. The main reason is that there is still room for optimization of the new production line process. And depreciation and fixed expenses are more. If the pharmaceutical intermediate business is deducted, the company's revenue will grow by about 16.22%, which is equivalent to the profit growth rate. Due to the increase in revenue from pharmaceutical intermediates, the company's overall gross profit margin decreased by 6.47 pp from the previous year to 79.76%. However, the intermediate expense rate decreased by 5.29 pp, and the expense rate was 65.73% in 2019, of which the sales expense rate decreased significantly, from 61.52% in 2018 to 57.46% in 2019. It is worth noting that Zhenjiang Derui, the base of APIs and intermediates, made a profit when it was put into production. Due to limited production capacity, the company has planned a new API and intermediate base in Anqing, which is expected to be completed in 2 years, all of which are expected to increase 600 million yuan in income and 100 million yuan in profit after delivery.

The main varieties of diuretics and antibiotics have maintained rapid growth, and the follow-up generic drug pipeline is worthy of attention: the company's core variety Torasemide has an income of 360 million yuan (+ 22.83%). At present, competitive product replacement is basically completed, but it is still higher than the growth rate of the industry; among antibiotics, cefotiam 121 million yuan (+ 8.14%), cefosidone 50.72 million yuan (+ 70.54%), tegacycline 45.73 million yuan (+ 61.65%) Update lovir 31.87 million yuan (+ 28.62%), adenosine monophosphate 26.89 million yuan (+ 25.50%), while lansoprazole and pidomod were limited in clinical use, and sales decreased by 19.36% and 15.13%, respectively. The company's high-end generic drug pipeline is rich in reserves, including randilol, Livashaban, Tegrilol, Apexaban and so on, and basically all of them are self-produced APIs, among which Landilol has submitted an application for on-site inspection and is expected to land in 2020 and become a new growth point.

Introduce NMS's new IDH inhibitor project and expand the company's innovative pipeline: the company signed a license agreement with NMS to introduce the small molecule IDH inhibitor project I111b to obtain its global exclusive development and commercialization rights, with a down payment of 750000 euros and a valuation of US $45.9 million. Delivery of preclinical candidate compounds by 2020. IDH inhibitors are potential small molecule targeted drugs in recent years. At present, FDA in the United States has approved two IDH inhibitors, ivosidenib and enasidenib, developed by Agios Company, to be used to treat AML patients with IDH1 gene mutation and IDH2 gene mutation, respectively. The company introduced innovative drug varieties from NMS, which opened the prelude to the cooperation between the two sides, and greatly strengthened Haichen Pharmaceutical's innovative drug research and development capability. At the same time, the company plans to build a production base of innovative drugs and preparations in Anqing High-tech Zone, which is expected to form a two-wheel drive pattern of high-end generic drugs and innovative drugs in the future.

Profit forecast and investment rating: affected by COVID-19 's epidemic situation, the company's 2020Q1 performance has declined, while considering the decline in the growth rate of some varieties, we will lower the company's EPS from 1.01,1.24 yuan to 0.87,1.03 yuan in 2020-2021, and it is expected that the EPS will be 1.21 yuan in 2022, and the current stock price will be 30 times the PE in 2020, maintaining the "recommended" rating.

Risk tips: 1) Core products are included in the scope of volume procurement: the progress of volume procurement is accelerated, and if subsequent collection and acquisition involves multiple varieties of the company, it will have a negative impact on the company; 2) the R & D progress is not as expected: at present, a number of R & D projects are in the registration process, among which randilol and other projects are expected to be approved in the near future, but drug evaluation may be delayed due to uncertain factors such as policy. 3) merger and acquisition integration is not as expected: at present, NMS has launched the first round of financing to support projects under research, but there are still a large number of funding needs in the follow-up, if it can not be solved well, it will affect the integration and cooperation between the company and NMS.