\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 285 Henan Lingrui Pharmaceutical Co.Ltd(600285) )
The management has completed the alternation between the new and the old, and equity incentive shows performance confidence. Founded in 1992, the company is a leading enterprise in the production and sales of patches in China. The change of management was started in 2014. After the alternation of new and old was completed in 2021, we began to carry out the sar-erp project. Through the integration of business and financial data, the production was determined by sales and the cost was reasonably controlled. In the same period, we carried out the new media water test project to effectively improve the customer reach rate. In July of the same year, the company passed the relevant proposal on the implementation of equity incentive, and the assessment requirements for the lifting of sales restrictions were that the annualized growth rate of net profit not attributable to the parent company from 2021 to 2023 should not be less than 20%, 20% and 15% respectively. Combined with the historical average growth rate and product sales, we expect the equity incentive plan to be effectively implemented.
The second marketing reform improved human efficiency, and the sales expense rate showed a downward trend. After following the first marketing reform and implementing the three-level sales team management mode, the company started the second marketing reform in 2019, unified the product sales platform and divided into OTC, primary medical and clinical business departments. The company’s key products such as Tongluo Qutong ointment grew steadily. Under the background of normalization of epidemic prevention and control, pediatric products such as Xiaoer antipyretic paste and Shufu paste returned to the growth curve before 2019; The profitability of fentanyl transdermal patch products is expected to continue to improve. The sales expense rate will be 50.85% and 50.65% in 2019 and 2020 respectively. Benefiting from the gradual effect of marketing reform, we expect the annual sales expense rate to decline by about 0.05%.
Patch products are optimized and upgraded to achieve new increment of performance. Tongluo Qutong ointment and Huoxue Xiaotong tincture, the main products of the company’s patch, are jointly sold. With the marketing reform of the company and the gradual expansion of OTC channels, we expect the compound growth rate of the revenue of the two products to reach 15% from 2021 to 2023, and the revenue is expected to reach 1 billion in 2023. The ex factory price of the two musk paste and the three musk paste is expected to rise by about 15.0% in April 2020, and the ex factory price of the two musk paste and the three musk paste is expected to rise by about 15.0% in April 2020. Combined with the increasing demand of customers for high-quality pastes, we predict that the product revenue will grow rapidly. In addition, we expect to maintain the high-speed growth of fentanyl products in the Chinese market for the first time in 2020.
Investment suggestion: the company is a leading enterprise of traditional Chinese medicine in China, with many advantageous paste varieties and high consumer recognition. We selected Tibet Cheezheng Tibetan Medicine Co.Ltd(002287) , Yabao Pharmaceutical Group Co.Ltd(600351) , Yunnan Baiyao Group Co.Ltd(000538) , Hunan Jiudian Pharmaceutical Co.Ltd(300705) , and China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) as the comparable companies. The average PE of the comparable companies in 2021 is 23x and that of 2022 is 21x. With the company’s marketing reform, product sales have gradually increased; At present, the product price is still low, there is still room for price increase, and the replacement rate of high-quality paste is about 20%, and the sales volume of high-quality products is expected to continue to increase. Therefore, we expect that the overall gross profit margin of the company is expected to continue to grow, and the future performance is expected to grow. It is expected to achieve revenue of RMB 2.762/3.241/3.713 billion from 2021 to 2023, and the net profit attributable to the parent company is RMB 391/4.87/569 million respectively, equivalent to EPS of RMB 0.69/0.86/1.00 respectively, corresponding to PE of 20x / 16x / 14x, The valuation level is lower than the PE average of comparable companies, and the “recommended” rating is maintained.
Risk warning: product sales are not as expected, policy risks and regulatory risks
