Competitive advantage lies in marketing. The company is an outstanding OTC corporation specialized in universal Chinese herbal drugs and has been cautious in interventional prescription drug field. Its competitive advantage lies in marketing and medical commerce aims at channel control strengthening.
Key point of growth achievement is based on next product category. 1) Jianweixiaoshipian has entered into mature period of products with declining increment; new markets come from market exploitation from counties and rural areas. 2) Caosanhu Tablet is likely in early recession, we believe the product can not recreate prosperity but exist as cash cow. 3) Promotion focuses on Chuyuan healthcare products in 2008 oriented at gifts for patients. We hold cautiously optimistic view for the company: it will probably gain revenue without relevant profit due to large sum of advertisement expenses. 4) Other new products need time in promotion. 5) Another product, IBE_5 is still under development and is expected to profit in 2011.
Earnings forecast and rating: We forecast 2008-2010E sales revenue and net profit to enjoy CAGR of 10.83% and 22.85% respectively with EPS of Rmb0.41, Rmb0.50 and Rmb0.61; DCF evaluation stood at Rmb8.43 while comparative evaluation (2008 PE of 18x-22x) ranged Rmb7.38-9.02. Its current price is fairly reasonable, but due to uncertainties in distribution of new products, we suspend rating estimation