Category: Money tips Release Date: 2006-10-30
Specialty pharmaceutical revenue growth remains the primary drivers of performance
Specialty pharmaceutical company engaged in the production and sales, especially in the field of organ transplantation in China have established a good drug market position. Transplant drugs in 2006 is expected to 420 million yuan, an increase of 10% (05 annual growth rate of 15%), in which Cyspin sales revenue of 2 billion yuan, 100 to make capsules of 2 billion, while new products, competitions can be flat for the 2,000 million. We believe that the transplant in 2006 slower growth in drug sales income of the main reasons are: anti-commercial bribery under the impact of new products, sales promotion blocked, the company originally planned to race to flat sales of 4,000 million yuan. Transplant medicine is expected in 2007 revenue growth will exceed 10%. In the long term, we believe that the whole transplant drug drug market prospects are very broad. There are about 150 million people every year in China end-stage organ failure due to the need for organ transplants, but only 1 million people a year access to transplantation for the treatment, mainly because of: lack of donor organs. We expect that once brain death legislation introduced, this situation will improve.
The company's other two main products Cabora-ping (treatment of diabetes) and the Pan-Li Su (gastric acid inhibitors). Carbo-ping (acarbose) in the original manufacturer is Bayer's research is expected to acarbose in 2006 sales revenue in China reached 800 million yuan. Companies to adopt and Bayer dislocation competitive strategy, and give their target customers primarily on small and medium hospitals, to achieve good results in 2005 Cabora flat sales growth of 70%, sales reached 8,000 million, the product is expected in 2006 sales revenue of 1.2 billion, while in 2007 will reach 160 million yuan. Pan Li Su is China's share of the highest sales of similar products in the brand, in 2005 the sales income reached 8,000 million (up 60%), expected in 2006 and 2007, respectively sales income 1.0 billion yuan and 120 million yuan.
Level of pharmaceutical business has turned the corner out of the profit
Company is now the largest pharmaceutical commercial enterprises, Zhejiang Province. Upon completion from the branch to the division after the adjustment, the profit level of pharmaceutical business greatly improved. The company also reduced the wholesale allocation of low-margin business, increase the net marketing business. In addition, the company actively take measures to increase high-margin drug agency business areas. At present, the commercial effectiveness of the adjustment has been seen, the first half of 2006 gross margin was 6.74%, 5.92% higher than the same period in 2005 improved 0.8 percentage points, we estimate that 06 to achieve net profit of 40 million yuan, an increase of 15%. Growth in net profit in 2007 is expected to remain at 15%.
Ningbo Company (Company owns 51% of the equity) is mainly engaged in the national general agent of foreign blood products, due to a flexible marketing mechanisms, we expect 2006 net profit will achieve more than double to 2,000 million.
Asset injection will be able to increase earnings per share 0.10 yuan
The company's largest shareholder China Grand Group in October 2006 of the share reform promised in the next two years, its subsidiary, Shenyang Pharmaceutical Sichuan Sichuan ambitious (40%), Lei Yun Shang Pharmaceutical (70%), Wuhan Grand Pharmaceutical Group (70.98%) of the shares into the listed company. Since 2007 the accounting policy adjustments, there is no difference amortization of equity issues. Of calculating profits by 2005, these assets will increase the company's net profit of 4,400 million (earnings per share 0.10 yuan). We expect the asset injection will be substantial progress in 2007.
Risk
1) The main products are pressure to cut prices. From the NDRC's policy of drug price cuts, the Government will have 2,400 within the scope of government pricing a variety of drug prices for a complete overhaul. As the company's main products in the health insurance directory belonging to government pricing range. Company's main products have higher unit price, including Seth-ping, race can be flat calm and Cabora have to enter into price adjustment within the first 21, we expect the decline in prices brought about due to volume growth will be difficult to compensate for loss of profits on price declines. 2) The acquisition of real estate projects will lead to the company's cash flow is more strained. Pre-largest shareholder, Hangzhou Yuanda Group will be the transfer of real estate projects to 180 million yuan to the company. Although the transaction a "capital preservation" clause, if the actual future gains less than 1.8 billion yuan will be compensated Yuanda Group, the overall profitability of the company appears to influence positive. We are worried about the impact of the company's cash flow, the company's main Yetai the pharmaceutical business, because health care medicine circulation system to bring the enterprise has operational difficulties, the company's accounts receivable and the pressure continued to grow. The current company's debt ratio has reached 70.4%, the acquisition will allow real estate companies exerted pressure on money that is spent.
Company Overview
The company's main businesses include the pharmaceutical business and the pharmaceutical industry of two parts, of which pharmaceutical business revenues accounted for 83% of total revenue. However, due to lower margins, pharmaceutical industry is a major source of profit for the company, which owned 75% of the joint venture of Sino-US East medicine is the core of the company's profitability. In the successful completion of the first "Three-Year Plan", the 2006 the company developed a second "Three-Year Plan", 07 -09 years of manufacturing goal is to preparation of income of 10 billion, revenues of 200 million yuan APIs ; business goals is to continue to play a Division advantages of a species to adjust to ensure that gross margin was 7-8%, continue to maintain the location of the first Zhejiang Pharmaceutical business and strive to achieve net profit doubled. The company's major shareholder is the China Grand Group, accounting for 35.5%.
Company Evaluation and investment advice
Company's current trading price in 2006 is equivalent to 30 times earnings per share and 2007 earnings per share of 25.1 times. Taking into account the main reason for the early repression stock price up down is clear, the asset injection will be substantive progress in 2007, we use a higher price-earnings ratio valuation, we have according to 2007 earnings per share target price to 30 times more determined, a 12-month target price of 7.2 yuan, and the current stock price has room to rise by 17.6% compared to the first time, to give an "overweight" recommendation.
