Essence Information Technology Co.Ltd(688555) (688555)
Deep cultivation of intelligent manufacturing, with gorgeous management team
Founded in 2013, the company’s overall business covers manufacturing, circulation and other pharmaceutical related full life cycle solutions. Liu Xuesong, director and actual controller of the company, is a distinguished professor of Qiushi of Zhejiang University and executive deputy director of the Institute of modern traditional Chinese medicine of the College of pharmacy. The core team of the company has been deeply engaged in the pharmaceutical field for a long time, has a deep understanding of the industry know-how, and has a sufficient background of combination of industry, University and research.
The pharmaceutical manufacturing industry is highly profitable, and changes in industries such as compliance and centralized procurement further give birth to demands related to intelligent manufacturing upgrading
According to the data of the National Bureau of statistics, in 2020, the main business income of Enterprises above Designated Size in the pharmaceutical industry reached 2796.03 billion yuan, the total profit reached 412.29 billion yuan, and the profit margin of each subdivided pharmaceutical field was more than 10%. We believe that, compared with other manufacturing industries, the relatively rich profits of the pharmaceutical industry provide a sufficient basis for intelligent manufacturing upgrade payment. On the other hand, strong drug supervision puts forward the demand of rigid characteristics for the informatization of drug production process. Meanwhile, since 2019, the state has conducted several rounds of centralized bidding procurement of drugs. We believe that pharmaceutical enterprises as a whole are affected by centralized procurement and face industry reshuffle reform. They use intelligent manufacturing to reduce costs and increase efficiency, or have stronger demands due to the strengthening of market competition.
Investment advice
The company is a high-quality enterprise deeply engaged in the field of pharmaceutical intelligent manufacturing. It is expected to fully enjoy the sustainable growth potential brought by the downstream industry “Changpo thick snow”, and further expand under the dividends of relevant policies of the traditional Chinese medicine industry. Its equity incentive plan fully shows its determination and confidence in developing intelligent manufacturing business. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be RMB 0.62/0.85/125 million, EPS will be RMB 0.74/1.02/1.51 respectively, and the corresponding PE will be 39x, 28x and 19x respectively. Referring to the characteristics of the company’s intelligent manufacturing business, we select Zhejiang Supcon Technology Co.Ltd(688777) , Guangzhou Sie Consulting Co.Ltd(300687) , Digiwin Software Co.Ltd(300378) as comparable companies. The average PE (wind consensus expectation) of relevant companies in 2021 is 51x, and the average PE (wind consensus expectation) in 2022 is 38x. The company has certain valuation advantages, covers it for the first time, and gives a “recommended” rating.
Risk statement
The company’s product R & D progress was less than expected, and the intensification of industry competition led to the decline of gross profit margin
