Haishun pharmaceutical packaging materials leading enterprises, the number of related reviews is significantly ahead of their peers: the company was founded in 2005, has focused on the R & D, production and sales of solid preparation packaging materials, and has maintained a stable cooperative relationship with more than 70% of the top 100 pharmaceutical enterprises. At the same time, since listing, the company has continued to promote category extension by means of epitaxy, gradually expanding the rich product line of pharmaceutical plastic bottles, plastic bags, aluminum covers, PVC hard tablets and other products in the field of pharmaceutical packaging, while actively laying out and trying other packaging areas such as food and cosmetics. In 2019, the income was 621 million yuan, CAGR5 reached 20.6%, and the net profit was 66.98 million yuan.

Large industries and small enterprises, association review helps to reshape the industry pattern: drug packaging materials are in direct contact with drugs, and their barrier, stability, compatibility with drugs, residues and other properties directly affect the stability of drug storage, validity and efficacy safety. Due to the late start and varying quality, the pharmaceutical packaging industry still presents a typical large market and small enterprise pattern, with more than 1500 enterprises in the industry, and a large number of low-threshold small-scale enterprises fill the market. Under the trend of consistency evaluation-related review industry, the quality of drug package materials will affect the evaluation results of pharmaceutical preparations, and pharmaceutical companies will also be responsible for the quality of drug packaging materials used. They are more inclined to cooperate with drug packaging material suppliers with high product quality and stability and strong security, and small enterprises with weak competitiveness will gradually withdraw from the market, which is conducive to the continuous improvement of market share of high-quality drug package leading enterprises.

With a significant core competitive advantage and a substantial lead in the number of related reviews, Huahai orders launched a beautiful battle to improve the degree of concentration: the company is ahead of the technical strength, with R & D expenditure of 26.44 million yuan in 19 years, and the R & D expenditure rate is maintained at 4%, which is higher than that of its peers. it has become the guarantee of the company's product competitiveness and technological advancement. The company's strong products cold stamping composite hard sheet breaks the technical barriers of foreign-funded enterprises, and the quality index reaches the level of developed countries, substantially ahead of peers; other products are also widely recognized by customers by virtue of advanced management level and excellent quality. According to the information of CDE drug package materials and auxiliary materials registration platform, the company has registered 104 varieties, far exceeding domestic competitors; of which 52 varieties have been activated, with an activation rate of 50%. On July 16, the company announced that it signed a contract with Huahai, including a tax amount of 53 million yuan (10.33 million yuan for Huahai procurement in 19 years and 18.5 million yuan for the largest customer), with volume procurement-the increase of concentration brings more incremental space to the company.

The profit inflection point has appeared: since the listing, the company's income has not increased, and the net interest rate has dropped from nearly 20% in the past to about 10%, mainly affected by the losses of acquired subsidiaries such as Shijiazhuang Zhonghui & Duoling Pharmaceutical package and the decline in capacity utilization. After years of integration, the profit level of the subsidiary is getting better and better, and it has begun to turn losses into profits in the first half of 20 years. Coupled with the steady increase in capacity utilization, 20Q2's quarterly net profit increased by 118%, the net interest rate reached 19%, and the company's profit inflection point was initially realized.

New applications open market new space: the company began to cooperate with Honeywell International Inc Aclar products in 2010. Recently, Honeywell International Inc launched extended application Aclar Edge, which has the characteristics of excellent moistureproof barrier performance and stability, no additives and so on, so that the products have the potential to replace glass bottles in many fields. at present, in the field of pharmaceutical packaging, they can be mainly used in human health oral liquid preparations, children's drugs and animal health aseptic injections and other products. Other applications are also being explored. As the first partner of Honeywell International Inc in China, the company is expected to benefit from the expansion of the application space of Aclar Edge products.

Investment suggestion: according to the company's new project announcement, considering the production capacity climbing of Suzhou Haishun & Duoling Pharmaceutical package and the gradual contribution of profits to the Nanxun project after 21 years, the performance growth is expected to accelerate. We estimate that the net profit of shareholders belonging to the listed company in 20-22 is 118 million yuan, 188 million yuan and 263 million yuan respectively, an increase of 76.0%, 59.6% and 39.7% respectively, and maintains the "buy-A" rating, corresponding to the 37.3X/23.4X/16.7X yuan for PE in 2020-2022.

Risk hint: the increase in concentration is not as expected, the profitability of the acquired company is not as expected, and the volume of new Aclar Edge products is not as expected, assuming that it is not as expected.