\u3000\u30 China Baoan Group Co.Ltd(000009) 89 Jiuzhitang Co.Ltd(000989) )
Main points:
Event:
On April 23, 2022, Jiuzhitang Co.Ltd(000989) issued an announcement on the transfer of part of the equity of its subsidiaries. The company plans to sell 51% equity of Hunan Jiuzhitang Co.Ltd(000989) Pharmaceutical Co., Ltd. to Yifeng Pharmacy Chain Co.Ltd(603939) for a transaction consideration of 204 million yuan. After the completion of this transaction, the company will hold 47.57% equity of Jiuzhitang Co.Ltd(000989) pharmaceutical, and Jiuzhitang Co.Ltd(000989) pharmaceutical and its subsidiaries will no longer be included in the scope of the company’s consolidated statements.
Li Zhenguo, the controlling shareholder and chairman of the company, plans to transfer 5.00% of the company’s shares held by him to Yifeng Pharmacy Chain Co.Ltd(603939) , with a transfer price of 9.85 yuan per share, and the total consideration of this transaction is 428 million yuan. The company released its annual report for 2021. In 2021, the company achieved a revenue of 3.784 billion yuan, a year-on-year increase of 6.31%, and a net profit attributable to the parent company of 271 million yuan, a year-on-year decrease of 0.59%. The company plans to pay 4 yuan (including tax) for 10 yuan.
The company released the first quarterly report of 2022. In the first quarter of 2022, the company realized an operating revenue of 1.196 billion yuan, a year-on-year increase of 4.40%; The net profit attributable to the shareholders of the listed company was 124 million yuan, a year-on-year increase of 15.58%; The net profit attributable to shareholders of listed companies after deducting non recurring profits and losses was 114 million yuan, with a year-on-year increase of 11.05%.
Analysis and comments
Join forces and empower each other.
Jiuzhitang Co.Ltd(000989) drugstore focuses on the characteristics of traditional Chinese medicine, with 190 direct chain stores and 359 franchise stores, all located in Hunan Province Jiuzhitang Co.Ltd(000989) pharmaceutical business (subsidiary Hunan Jiuzhitang Co.Ltd(000989) pharmaceutical) had a revenue of 1.04 billion yuan in 2021, with a year-on-year increase of about 4%, a net profit of 8.42 million yuan and a net interest rate of only 0.81%, and its operation was relatively backward. After the completion of the transaction, Hunan Jiuzhitang Co.Ltd(000989) will no longer be included in the scope of the company’s consolidated statements. However, according to the consideration of this transaction, this transaction is expected to increase the company’s current net profit (non recurring profit and loss) by about 158 million yuan.
Yifeng Pharmacy Chain Co.Ltd(603939) as the leading pharmaceutical retail in China, the company achieved a main revenue of 10.938 billion yuan and a net profit attributable to the parent company of 696 million yuan in the first three quarters of 2021. The total number of stores of the company is 7246, with outstanding operating efficiency. According to the data of Zhongkang drugstore, Yifeng has 1608 stores in Hunan regional chain drugstores. After the acquisition of Jiuzhitang Co.Ltd(000989) drugstore, the number of Yifeng Pharmacy Chain Co.Ltd(603939) stores in Hunan will exceed 2000, which is expected to return to the first in Hunan. The price of Hunan Jiuzhitang Co.Ltd(000989) which is the subject of this transaction is 400 million yuan, and the corresponding PS is about 0.4x.
After the Jiuzhitang Co.Ltd(000989) store is sold to Yifeng Pharmacy Chain Co.Ltd(603939) store, although it is no longer consolidated, it is expected that the operating efficiency will be greatly improved. According to the announcement of Yifeng Pharmacy Chain Co.Ltd(603939) , after the completion of business integration, it is expected that the first annual sales volume of the target company will not be less than 1.14 billion yuan and the net profit will not be less than 18.4 million yuan. That is, the investment income attributable to Jiuzhitang Co.Ltd(000989) in 2022 is about 8.75 million yuan, which is still higher than the annual profit in 2021. Moreover, after Yifeng Pharmacy Chain Co.Ltd(603939) becomes the shareholder of the company, it will further bind the interests of both parties, and the two can cooperate and develop in coordination in the future.
The overall decline of sales expenses in the first quarter led to the growth of net profit faster than that of revenue. In 2022q1, the overall gross profit margin of the company was 58.04%, with a year-on-year increase of – 4.64 percentage points; However, the expense rate during the period was 43.52%, with a year-on-year rate of – 4.85 percentage points; Among them, the sales expense rate was 36.98%, with a year-on-year increase of – 3.81 percentage points, which is expected to be caused by the adjustment of the sales policy of large single products; The management fee rate was 6.44%, with a year-on-year increase of -1.06 percentage points. The net operating cash flow was 139 million yuan, a year-on-year increase of + 678.27%,.
Actively expand marketing channels, and the OTC sector of traditional Chinese medicine grew steadily. In 2021, the OTC sector achieved a revenue of 1.79 billion yuan, a year-on-year increase of 16%. The company continues to cultivate the market, cooperate with more than 500000 chain terminals, and actively promote offline operation through various forms of online traditional Chinese medicine culture popularization and product promotion. The sales revenue of five key Chinese patent medicine products reached more than 100 million yuan, including Liuwei Dihuang pill, lvjiao Buxue granule, donkey hide gelatin, Angong Niuhuang Pill and Zuguang powder, of which the sales revenue of Angong Niuhuang Pill increased by 22% year-on-year; The sales revenue of 26 products exceeded 10 million yuan, of which the sales revenue of Qiju Dihuang pill, Buzhong Yiqi pill, Wuji Baifeng pill and other products increased by more than 20% year-on-year. The price of several core products has been raised to highlight the brand value. On January 1, 2022, the company raised the price of some Chinese patent medicine products considering the impact of the price rise of raw materials of some products. Among them, the retail price of Angong Niuhuang Pill increases by 10-20% per box; The ex factory price of the main products of Liuwei Dihuang Pill increased by 10%; The ex factory prices of other OTC products have also increased to varying degrees. It is expected that the price increase will not only cover the impact of rising raw material costs, but also increase the company’s profits.
Prescription drugs conform to the trend of medical system reform and steadily promote the re evaluation work. The company strengthened the academic promotion of Shuxuetong products, actively responded to market changes including centralized purchase and medical insurance negotiation, and took multiple measures to maintain the stable development of Shuxuetong products to provide stable cash flow. At present, the company has steadily promoted the re evaluation of Shuxuetong injection, and focused on the research on Shuxuetong injection for preventing the recurrence of acute embolic stroke (Space Research) at the stroke secondary prevention forum of the seventh academic annual meeting of China Stroke Society (CSA & tisc2021), and interpreted the research results and clinical significance of Shuxuetong injection for preventing the recurrence of stroke. The company will demonstrate the safety and effectiveness of Shuxuetong products through relevant academic research, form an expert consensus and fully enhance the clinical value of the products.
Continue to increase R & D investment, and the product line is expected to continue to enrich. In 2021, the company invested 118 million yuan in R & D, with a year-on-year increase of 3.85%. The company actively broadened the R & D pipeline, mainly arranged the stem cell, innovative anticoagulant class I new drug LFG project, innovative cyclic lipopeptide antibiotic yb211 project, and the upcoming clinical phase III antibody drug remd-477 project of glucagon receptor. All clinical studies have progressed smoothly.
Investment advice
Due to the update of the company’s annual report and the proposed sale of equity of core subsidiaries, the previous profit forecast was adjusted. We expect that the company’s revenue from 2022 to 2024 will be RMB 3.27 billion / 3.69 billion / 4.24 billion respectively, with a year-on-year increase of – 13.6% (the adjusted growth rate is 20%) / 12.9% / 14.8%, and the net profit attributable to the parent company will be RMB 5.3/5.6/740 billion respectively, with a year-on-year increase of 97.1% / 4.3% / 33.1% respectively, with a corresponding EPS of RMB 0.61/0.64/0.85 and a corresponding valuation of 16x / 16x / 12x. Maintain the “buy” investment rating.
Risk tips
Marketing expansion is less than expected; Large variety dependence risk; The impact of centralized mining exceeds expectations, etc
