1) the company released its annual report in 2020, with operating income of 6.485 billion yuan (+ 20.36% YOY), net profit of 930 million yuan (+ 63.24% YOY) and non-return net profit of 816 million yuan (+ 81.38% YOY). The performance was lower than market expectations. 2) the company released its quarterly report for 2021, with an operating income of 1.497 billion yuan (- 4.69%YOY), a net profit of 255 million yuan (+ 15.6% YOY) and a non-return net profit of 150 million yuan (- 23.98% YOY), which was lower than market expectations. 3) the company issued a 2021 restricted stock incentive plan (draft), which intends to grant 45.65 million restricted shares to 625 subjects, accounting for 3.138% of the company's total share capital at the time of the announcement of this draft incentive plan, of which 40.65 million shares are granted for the first time and 5 million shares are reserved.
The performance appraisal target is based on net profit in 2020, and the growth rate of net profit in the next three years is not less than 20%, 44%, 73%.
In 2020, the performance achieved rapid growth, and all business lines advanced well. In 2020, the company achieved operating income of 6.485 billion yuan (+ 20.36% YOY) and net profit of 930 million yuan (+ 63.24% YOY). The performance achieved rapid growth, mainly due to the rapid increase in the market coverage of domestic preparation products with the advance of collection, thus greatly increasing domestic preparation sales. the resumption of CEP certificate of sartan API products led to a substantial increase in the company's API business sales. However, the company's performance was lower than market expectations, mainly due to the price reduction of sartan APIs and exchange losses. In 2020, the company's gross profit margin was 63.73% (+ 3.19pp YOY). The increase in gross profit margin was mainly due to the increase in the proportion of domestic preparation sales with high gross margin, and economies of scale diluted production costs. In 2020, the company's business lines advanced well. 1) domestic preparations: the operating income was 2.07 billion yuan (+ 84.49% YOY) and the gross profit margin was 84.49% (+ 2.11pp YOY). The rapid growth was mainly due to the huge increment brought by the winning bid of the company's preparation product collection. The company's annual sales of losartan potassium tablets and irbesartan hydrochlorothiazide tablets exceeded 500 million yuan. Valsartan tablets and other three varieties successfully won the third batch of national collection, effectively ensuring the collection supply. 2) Foreign preparations: the operating income was 1.028 billion yuan (- 11.22% YOY) and the gross profit margin was 51.47% (+ 6.11pp YOY). Overseas preparation sales declined, mainly due to the multiple effects of the FDA ban in the United States and the epidemic situation of COVID-19. The company's more than 10 products rank first in the market share in the United States. The company's preparation International Business Department actively distributes markets in Southeast Asia, the Middle East and North Africa, and completes the submission of 9 product registration documents in Vietnam, Cambodia and other 5 countries and regions.
Japanese companies actively promote the domestic introduction of products. European companies have promoted the establishment of an European registration platform in an orderly manner, effectively maintaining communication channels with EU officials, and steadily advancing the company's global business. 3) API: achieve business income of 3.102 billion yuan (+ 25.12% YOY). During the reporting period, the company restored the EU CEP certificate for sartan APIs, cultivated key customers, opened up emerging markets and expanded new customers. Among them, losartan potassium, irbesartan and valsartan achieved sales revenue growth of about 139% year-on-year, and API sales in Asia, Africa and Latin America increased by about 76% year-on-year. New products are expected to be released iteratively. 21Q1, the company achieved operating income of 1.497 billion yuan (- 4.69%YOY), net profit of 255 million yuan (+ 15.6% YOY) and net profit of 150 million yuan (- 23.98% YOY) deducted from non-return. The performance was lower than market expectations, mainly due to: 1) API: Satan API price reduction, overseas customers affected by the epidemic in the same period last year increased stock preparation brought about high base effect 2) overseas preparations: the sales of preparations in the United States decreased by 30% and 40%, mainly due to factors such as increased customer stock in the same period last year; 3) domestic preparations: the growth of mental classification products did not meet expectations. It should be noted that the company's lower-than-expected 21Q1 performance is more of a temporary factor, and the company's annual budget target has not changed. The company actively increases the research and development of API and domestic and foreign preparation products, and has a strong driving force for growth. 1) domestic preparations: in 2020, 8 new product production approvals were obtained, 1 product passed the drug conformance evaluation, 10 new product applications were completed, 9 BE trials were carried out; 2) American preparations: in 2020, 2 preparation products were approved by FDA, 5 ANDA applications were completed, and 36 projects under research were carried out in an orderly manner. 3) API: 2 varieties approved in China and 8 newly registered overseas (including 1 FDA, 2 CEP, 5 in China). The company's follow-up iteration of new products is worth looking forward to.
The equity incentive plan will be announced in 2021 to stimulate the motivation of employees. The company issued the 2021 equity incentive plan, which intends to grant 45.65 million restricted shares to the incentive target, accounting for 3.138% of the company's total share capital at the time of the announcement of this draft incentive plan, of which 40.65 million shares (2.795% of the total share capital) are granted for the first time. 5 million shares (0.344% of the total share capital) are reserved. The incentive targets include 625 directors, senior managers, middle managers and core technical personnel. The grant price is 10.21 yuan per share, and the average equity value of the grant object is about 750000 yuan. The performance appraisal target is based on net profit in 2020, and the growth rate of net profit in the next three years is not less than 20%, 44% and 73% (CAGR 20%). It should be noted that "net profit" refers to net profit after deducting non-recurring gains and losses and excluding equity incentive fees. We believe that the launch of the equity incentive plan not only demonstrates the company's performance confidence, but also inspires the motivation of employees.
Share buyback shows confidence in the company's performance. The company announced that it intends to use its own funds to buy back the company's shares in the form of centralized bidding transaction, with a total capital of not less than 100 million yuan and no more than 200 million yuan, and the repurchase price not more than 25 yuan per share (inclusive). The shares repurchased this time will be used for the implementation of employee stock ownership plans or equity incentives, of which 30% of the repurchase shares will be used for employee stock ownership plans and 70% for equity incentive plans. We believe that this share buyback demonstrates the company's performance confidence.
Profit forecast, valuation and rating: the company is the leader in the domestic API industry, but considering the uncertainty of the price reduction of its sartan API products, the increase in R & D expenditure and the lifting of the FDA ban in the United States, we reduce the company's 21-22 net profit to 1.261 billion yuan (20.42%) / 1.606 billion yuan (20.56%), and increase the net profit in 2023 to 1.941 billion yuan. The year-on-year growth of 36%, 27%, 21%, respectively, corresponds to an EPS of 0.87, 1.10, 1.33 in 21-23, and the current price corresponds to a multiple of PE in 21-23, which is 25-20-16, maintaining the "Buy" rating.
Risk hint: the price reduction of collection mining is more than expected, the bid winning of subsequent collection collection is not as expected, the recovery of API is not as expected, and the price of API has dropped sharply as a result of intensified competition.