China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) in depth report: core business sees the sun through the clouds, and the value of OTC platform is highlighted

\u3000\u30 China Baoan Group Co.Ltd(000009) 99 China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) )

The self diagnosis and treatment business has continued to grow rapidly, and the impact of prescription drug policies has bottomed out: on the one hand, the company’s self diagnosis and treatment business has accelerated after 2017, with a compound growth rate of more than 10%; On the other hand, in recent years, the business of traditional Chinese medicine injections and antibiotics in the prescription drug business has continued to decline under the influence of policies, and has basically bottomed out in 2021. With the release of the new national standard of traditional Chinese medicine formula particles and market expansion, the company’s prescription drug business is expected to usher in a new growth stage. Overall, the development of the company has entered the inflection point of long-term growth.

Rare platform brand OTC enterprises, benign interaction between OTC categories and brands: on the one hand, the company creates a “1 + n” brand matrix, continues to expand brands such as “Tianhe”, “Shunfeng”, “haowa”, “Yi Shanfu” and “Aonuo” around 999 brand, and ranks first or top three in the industry in terms of market share in many product categories; On the other hand, through the “999 Ganmaoling” brand empowerment + early channel high gross profit strategy, the company has driven the market share of a series of second-line cold products within the company to continue to rise; In addition, in 2014, the company built Sanjiu Weitai and 999 dermatitis flat as category brands, and included similar products Yangweishu, Wenweishu and triamcinolone acetonide econazole cream under category brands to create “stomach medicine family” and “skin medicine family”, so as to realize the continuous expansion of family income.

Two way development of endogenous extension and continuous expansion of OTC product categories: the introduction of characteristic products such as Aonuo, yishanfu and Longjiao powder through mergers and acquisitions and cooperation, the launch of 999 jinweiduo relying on Shandong Shenghai and the launch of traditional Chinese medicine tonics around traditional Chinese medicine, and the continuous expansion of the company’s product categories.

Formula particles have entered a new stage of development: in 2021, the national standards of traditional Chinese medicine formula particles have been released one after another, and the end use of formula particles has been released to all medical structures, opening up a new space for the large amount of formula particles.

The listing of antibiotic innovative products led to the rebound of the sector: the company’s key products azithromycin and cefazolin were included in the national centralized purchase in 2019 and 2021 respectively, and the revenue of the sector bottomed out in 2021. In 2022, the five generation cephalosporins will be listed in large quantities, which is expected to drive the sector to rebound.

Equity incentive strengthens the confidence of long-term and steady development: at the end of 2021, the company launched the first equity incentive scheme in history. At present, the scheme has been approved by the general meeting of shareholders. Performance assessment objective of equity incentive: the rate of return on non attributable net assets and the growth rate of non attributable net profit in the next three years are higher than 10%.

Profit forecast: it is estimated that the revenue in 2021 / 2022 / 2023 will be 15.320 billion yuan / 17.687 billion yuan / 20.172 billion yuan, the corresponding net profit attributable to the parent company will be 2.047 billion yuan / 2.380 billion yuan / 2.820 billion yuan, and the corresponding PE will be 18.08/15.55/13.12.

First rating: buy. The company’s performance is expected to enter a new stage of steady growth, and the growth of revenue and profit promotes the improvement of market value.

Risk tip: the risk that the policy leads to the product price reduction exceeding the expectation, the risk that the product sales promotion is less than the expectation, the risk that the R & D progress is less than the expectation, the market competition intensifies exceeding the expectation, and the risk that the aggravation of the epidemic situation leads to the fluctuation of the drug market

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