\u3000\u30 China Baoan Group Co.Ltd(000009) 99 China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) )
Ping An View:
The company is positioned as the platform of “self diagnosis and treatment + prescription drugs” and is a leader in China’s traditional Chinese medicine industry: China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) is a characteristic platform of “self diagnosis and treatment + prescription drugs” under China Resources Group, with rich product lines. At present, the number of varieties with annual sales of more than 100 million yuan has reached 21, of which CHC business covers many categories such as cold, gastrointestinal and skin. “999” brand enjoys high recognition, and the core products 999 Ganmaoling and Sanjiu Weitai rank in the forefront of the Chinese market; Prescription drug business covers cardio cerebrovascular, tumor and other treatment fields. Shenfu injection, cinobufagin and other products enjoy a high reputation in the industry. The performance express showed that the company had a stable growth in 2021, with a revenue of 15.320 billion yuan (+ 12.34%) and a net profit attributable to the parent company of 2.047 billion yuan (+ 28.13%).
The heavy support policies for traditional Chinese medicine have been issued one after another, and the equity incentive goal of the company shows development confidence: the heavy support policies for the traditional Chinese medicine industry have been issued continuously. In 2021, the guiding opinions on medical insurance supporting the inheritance, innovation and development of traditional Chinese medicine was released, and the attitude of medical insurance towards traditional Chinese medicine has changed from previous restrictions to support, greatly improving market confidence. At the same time, the inter provincial alliance of Chinese patent medicine implemented centralized procurement, with an average price reduction of 42.27%, and the result was relatively mild. The company issued the equity incentive plan for 2021, set multi-dimensional assessment standards, and set performance targets from three aspects: return on non net assets attributable to parent deduction, annual compound growth rate of non net profits attributable to parent deduction and total asset turnover. Among them, the annual compound growth rate of non net profit attributable to parent deduction is not lower than the industry average or the 75th percentile of benchmarking enterprises, and the roe is not lower than the 75th percentile of benchmarking enterprises, which is challenging.
CHC business continues to improve and expand, and traditional Chinese medicine formula granules have become a new growth point: the non prescription drug revenue of 2021h1 company is RMB 5.1 billion, accounting for 66%. OTC varieties have obvious consumption attributes, and the company has the ability to raise prices, which is expected to drive the continuous growth of the company’s performance. On the basis of high recognition of “999” brand, the company has successively supplemented “Tianhe”, “Shunfeng”, “Aonuo” and other brands through extension mergers and acquisitions to further strengthen terminal coverage. On the basis of digital marketing innovation, actively try cross-border marketing and constantly give the brand young and fashionable vitality. At the same time, the company vigorously develops the traditional Chinese medicine formula granule business and speeds up the layout to enhance the competitiveness of the industrial chain. We believe that traditional Chinese medicine formula granules have the potential of 100 billion market scale and are expected to become a new growth point of the company.
First coverage and “recommended” rating: it is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 2.047 billion yuan, 2.347 billion yuan and 2.689 billion yuan respectively, and the current share price corresponds to only 15 times of PE in 2022. According to the valuation level of comparable companies, we give the company 20 times PE in 2022, with a target market value of 46.9 billion yuan. For the first coverage, give a “recommended” rating.
Risk tips: 1) market and policy risks: centralized purchase of drugs with quantity, reform of payment method, etc. may affect the profitability of some varieties. 2) Risk of drug price reduction: under the background of centralized purchase, the varieties occupying a large amount of medical insurance funds in the medical insurance catalogue may face the risk of price reduction. 3) Risk of price fluctuation of raw materials: the price of traditional Chinese medicine has been affected by many factors such as macro-economy, monetary policy, natural disasters, information asymmetry of growers and so on, which is prone to large-scale fluctuations, thus affecting the production cost of traditional Chinese medicine pharmaceutical enterprises.
