What happened: the company released its semi-annual report for 2020. In the first half of 2020, the company realized total operating income of 18.809 billion yuan, year-on-year + 11.56%; net profit of 777 million yuan, + 12.93%; and non-net profit of 750 million yuan, + 13.02% of the same period last year. The performance is in line with expectations.

Comments:

Profits in the international trade sector have greatly increased, and hospital channels are waiting to be repaired. The company is mainly engaged in pharmaceutical wholesale. During the epidemic prevention period, pharmaceutical sales continued to grow, and the performance was in line with expectations. From a quarterly point of view, Q1 and Q2 achieved revenue of 7.485 billion yuan and 11.324 billion yuan respectively, which is-9.21% and + 31.44% respectively compared with the same period last year. Q2 accelerated growth forecast is driven by the repair of medical channels. In the first half of the year, the international trade sector accelerated the implementation of stock projects and the rolling development of new business during the epidemic, achieving revenue of 7.244 billion yuan, year-on-year + 84.02%, operating profit of 863 million yuan, year-on-year + 112.28%. In the case of a marked decline in the number of outpatients in hospitals during the epidemic, the pharmaceutical commercial sector actively undertook epidemic prevention business, explored new sales models, and maintained the sustained growth of sales revenue. In the first half of the year, revenue reached 12.169 billion yuan, + 12.15% compared with the same period last year. However, due to the decline in the proportion of hospital net sales business, the extension of account period and other factors, profits decreased to 319 million yuan, down 36.83% from the same period last year. The pharmaceutical industry sector is greatly affected by the epidemic and policy factors such as "volume procurement", medical insurance catalogue adjustment, and "limited resistance", coupled with the factors of shutdown of individual enterprises, resulting in a decline in income and profits, with revenue of 1.902 billion yuan in the first half of the year, down 28.95% from the same period last year, and operating profit was 49 million yuan, down 78.53% from the same period last year.

Profitability indicators fell. In the first half of the year, the company achieved a gross profit margin of 16.59%, down 3.63 percentage points from the same period last year; the net profit rate was 4.69%, down 0.36 percentage points from the same period last year; and the expense rate during the realization period was 9.88%, down 3.75 percentage points from the same period last year. Among them, the original large varieties in the pharmaceutical industry plate were affected by the epidemic situation, "volume procurement", "limited resistance", and the adjustment of medical insurance catalogue. the sales scale and proportion of high gross margin varieties shrank, and the gross profit margin in the first half of the year decreased by 15.10 percentage points compared with the same period last year.

We will continue to promote variety construction and enhance core competitiveness. ① pharmaceutical industry plate: in the first half of the year, the company's amoxicillin capsules, clindamycin hydrochloride capsules, rosuvastatin calcium capsules and finasteride tablets passed the generic drug consistency evaluation, among which amoxicillin capsules have successfully won the bid in the second round of national collection. At the end of June, the new product development project cefodizine sodium for injection, oxiracetam injection and Atto vastatin calcium tablets have obtained drug registration approval. ② pharmaceutical business sector: the company increases efforts to evaluate the consistency of generic drugs and purchase drug varieties with volume, actively develop the business of medical devices, consumables, reagents, traditional Chinese medicine slices, etc., promote business cooperation in the field of IVD, and strengthen the integration and coordination of varieties through the "commercial association" with Chongqing Pharmaceutical, further enriching the scope and connotation of business services in the commercial sector.

Investment advice: the company is a leading pharmaceutical business enterprise, new products continue to be approved, hospital channels are gradually repaired, performance is expected to maintain steady growth. We estimate that the company's earnings per share in 2020 / 2021 will be 1.38pm 1.47 yuan respectively, and the current share price will be 11.42max 10.69 times PE, giving the company a "cautious recommendation" rating for the first time.

Risk tips: substantial reduction in drug prices, less than expected recovery of hospital channels, changes in medical policy, and so on.