The leading domestic plaster manufacturer has obvious advantages in products and brands.

Lingrui Pharmaceutical is a leading plaster manufacturer in China, currently holding and participating in more than a dozen enterprises, and has a number of scientific research and production bases. Among them, Lingrui Pharmaceutical 10 billion plaster production base and Lingrui Xinyang Health Industrial Park are all domestic advanced production bases.

The company has more than 100 kinds of orthopaedics, cardiology, encephalopathy and anesthesiology products. Tongluo Qutong ointment, the core product, is a national variety protected by traditional Chinese medicine. 46 varieties have been selected into the medical insurance catalogue, and a multi-level and wide-range product pipeline has been built. The company continues to promote brand innovation-driven strategy, "Lingrui" trademark has been recognized as "China well-known Trademark" by the State Administration of Company Administration, and the brand market influence, reputation and popularity have been continuously improved.

The company focuses on the main business, deeply ploughing orthopaedic diseases, cardio-cerebrovascular diseases and other fields. In 2015-2019, the overall business income increased from 1.071 billion yuan to 2.157 billion yuan, with a CAGR of 19%; the non-return net profit increased from 121 million yuan to 284 million yuan, and the CAGR was 24%. The overall performance grew steadily, and the cash flow was good.

From traditional Chinese medicine plaster to chemical medicine transdermal patch, the company continues to enrich its product line and expand the market space. The retail market scale of traditional Chinese medicine plaster is about 4.9 billion yuan in 2017, but there are many production enterprises. The market is more worried that the market space will become the ceiling for suppressing the development of antelope pharmaceutical business, but we think that the company relies on continuous R & D investment to enrich its product line, from traditional Chinese medicine plaster to soft / hard plaster to transdermal patch of chemical medicine. The space for growth is constantly expanding.

Traditional Chinese medicine plaster has a long history in China, and it is one of the commonly used external treatment techniques in traditional Chinese medicine clinic. Lingrui Pharmaceutical, as a leading domestic plaster enterprise, traditional orthopedic plaster is used to treat skeletal muscle system diseases such as rheumatism, muscle pain, sprain and so on. Affected by the aging of the domestic population, the continuous increase in the prevalence of obesity and other factors, the number of domestic musculoskeletal diseases continues to rise, and the market scale continues to increase. Lingrui Pharmaceutical Orthopaedic paste has Tongluo Qutong ointment, Zhuanggu musk analgesic ointment, joint analgesic ointment, Shangshi Zhitong ointment and other varieties, in a leading position in the industry.

The company continues to increase R & D investment, in the field of orthopaedics, launch indomethacin ointment, Huoxue Xiaotong tincture, etc., form a product combination with existing plaster, and further enrich the product line of orthopedic plaster; also set foot in the ointment market, has launched Sanhuang pearl ointment, compound ketoconazole ointment, momethasone furoate ointment and other varieties, and orderly promote the research and development of medical devices and health products, improve the product echelon. The company uses plaster technology to expand varieties in pediatrics, gastroenterology, dermatology and other new fields, including antipyretic patch, hot compress patch, motion sickness patch, warm hot patch and so on. Continue to enrich the product line, form a product group, and expand the future development space.

Transdermal drug delivery is a newly developed new drug delivery system, which has become the third largest way of drug delivery after oral and injection. The overall market size is about 10 billion US dollars. The company listed fentanyl transdermal patch in 2013. It is the only bone-based transdermal fentanyl patch listed in China, which is used to treat moderate to severe chronic pain and pain that can only be cured by opioid analgesics.

In 2019, the sales of sample hospitals exceeded 10 million, and the company also used the R & D platform to launch other chemical transdermal products one after another to further expand the growth space.

Younger management, promote marketing reform and brand upgrading, continue to bring marginal profits to improve the company's management has more than 80, the management team is showing a younger, professional trend, on the one hand, to inject more fresh blood and advanced management ideas to improve management efficiency, on the other hand, the brand concept is closer to the current young consumer groups, which helps to upgrade the antelope brand.

The company promotes the completion of the integration of the marketing platform, and the wholly-owned subsidiary Lingrui Pharmaceutical fully integrates the company's rubber paste, ointment and oral medicine sales team, relies on superior channel resources, deeply covers the national market, and carries out a new model of fine assessment and management. set up a high-quality professional sales team to effectively stimulate the enthusiasm of employees.

The young management of the company is more acutely aware of the changes in consumption trends, continue to pay attention to the cause of sports and health, actively promote the "sports", "fashionable" and "younger" of the antelope brand, and carry out the layout around the sports industry. carry out experiential marketing strategy, expand to the field of sports medicine, and enhance the awareness of the antelope brand among sports people.

At the same time, the company also redesigns the packaging products, starting from the professional, safe and modern brand tonality as a whole. at present, the main products in the fields of oral medicine and ointment are gradually updating their designs, and the new packaging is more catering to market consumers. and then help the company's brand upgrade.

Driven by channel reform and brand upgrading, the ability of brand premium is expected to be continuously improved, and the company has launched some fine products of paste products to provide high-quality differentiated products for the market.

We believe that channel reform and brand upgrading are bound to improve the company's brand premium capacity, and the company is expected to continue to adjust its overall sales structure under the background of optimal consumption by providing high-quality differentiated products. It will bring long-term and sustainable marginal profits.

Profit forecast and investment advice:

Lingrui is a leading domestic plaster manufacturer, forming products, brands and market advantages in the field of traditional Chinese medicine plasters. The company continues to increase investment in research and development, from traditional Chinese medicine plasters to chemical medicine transdermal stickers to enrich product lines and expand market space.

The company's management team is younger and professional, injects more fresh blood and advanced management ideas into the company, and improves management efficiency. At the same time, the brand concept is closer to the young consumer group, which helps to upgrade the antelope brand. Driven by channel reform and brand upgrading, it will bring long-term and sustainable marginal profits.

We forecast that the company's operating income from 2020 to 2022 will be 2.424 billion yuan, 2.787 billion yuan and 3.259 billion yuan respectively, an increase of 12.4%, 15.0% and 16.9% respectively over the same period last year. The net profit of homing was 343 million yuan, 419 million yuan and 526 million yuan respectively, up 16.6%, 21.9% and 25.5% respectively over the same period last year. The corresponding closing price of September 8, PE was 18X/15X/12X, which was first covered and rated as "recommended".

Risk tips: the progress of research and development is not as expected, the promotion of new products is not as expected, the effect of sales reform is not as expected, the risk of fluctuation of raw material costs, the risk of brand upgrade failure, and so on.