Event:
The company released 2008 annual report, in which it gain sales revenue of Rmb1.132bn (+13.36% yoy), net profit attributable to shareholders of parent of Rmb142mn (+47.31% yoy) and net profit attributable to shareholders of parent (deducting non-recurring profit and loss) of Rmb136mn (+48.59% yoy); EPS pegged at Rmb0.53.
Our Analysis and Estimation:
1. Acceleration of net profit is basically in line with expectation;
2. The “traditional Chinese medicine injection event” negatively affects the company;
3. Negative growth of cash flow does not become a risk factor;
4. Profit grows faster than that of revenue in the future;
Investment Suggestion:
We forecast the company’s 2009-2011E sales revenue of Rmb1024.8685mn, Rmb1159.8526mn and Rmb1298.0407mn respectively (revenue declines due to medicine business split-off), net profit attributable to shareholders of parent of Rmb185.6066mn, Rmb216.8742mn and Rmb245.9447mn with CAGR at 20.11%; 2009-2011E EPS should be Rmb0.70, Rmb0.81 and Rmb0.92.
The company is one of domestic industrial bellwethers of traditional medicine modernization and we hold optimistic view on its development potential in the long term. The company’s 2009 P/E ratio is 23x based on current price of Rmb18.75, which is lower than the industrial average; since negative impact of traditional Chinese medicine injection event is fading off, we maintain “Recommended” rating. Calculated with DCF computation (WACC=8.13%, g=3%), the company’s rational valuation is Rmb21.23, with implied 2009-2011E P/E ratio at 30.2x, 25.8x and 20.6x respectively.