East China Medicine (000963): Acquisition of Zuoli Pharmaceutical to strengthen synergy of traditional Chinese medicine

East China Medicine (000963): Acquisition of Zuoli Pharmaceutical to strengthen synergy of traditional Chinese medicine

The acquisition of Zuoli Pharmaceutical Co., Ltd. announced that the holding company may issue a public announcement on May 26th.

600 million acquisition of Zuoli Pharmaceutical (300181.

SZ) 113,216,652 shares (proportion 18).

60%), to achieve a holding.

Zuoli Pharmaceutical focuses on the research and development, production and sales of medicinal powder series products, traditional Chinese medicine decoction pieces and traditional Chinese medicine formula granules.Bigger and stronger traditional Chinese medicine with chronic diseases.

The company has built a new industrial sector focusing on the four major areas of diabetes, super-anti-tumor, anti-tumor and immunosuppressive agents, and actively deployed the field of medical beauty. We are optimistic about the continued growth of the company’s subsequent performance and maintain the company’s EPS forecast for 19-21.

97/2.

47/3.

14 yuan, 19 years of PE24-25x (compared to the average company’s 19 years PE 25x), and a target price of 47.

28-49.

25 yuan, maintain BUY rating.

  The acquisition premium rate is high, and there is little pressure on operating cash.

The 6% transaction consideration does not exceed about 5.7 billion, and the premium rate is high (271 times PE), mainly because the holding listed company has part of the shell value.

The purchase amount does not exceed 10.

600 million, agreed to pay in two years, there is little pressure on operating cash (the company’s 1Q19 currency funds 18.

2.3 billion).

  Zuoli Pharmaceutical’s operating quality needs to be improved. Zuoli Pharmaceutical’s revenue in 20187.

300 million (-8.

02%), and achieved net profit of 2075.

20,000 yuan (-54.

03%), of which the main variety Wuling Capsules (ranked second in headache and insomnia products) achieved income3.

500 million (+1.

72%), Bailing films realized income1.

300 million (+1.

69%), sales operations need to be improved.

The company achieved revenue in the first quarter of 20192.

30,000 yuan (+19.

93%), and achieved net profit of 1082.

30,000 yuan (+20.

82%), Wuling series products (+21.

05%) and Bai Ling series (+10.

84%) faster growth.

After East China 北京夜网 Holdings grafted high-quality sales resources and leveraged the synergistic advantages of varieties, the company’s operating quality and efficiency promoted a significant improvement.

  This acquisition is relatively neutral We consider this acquisition relatively neutral: 1) Zoli Pharmaceutical’s Bailing Tablets revenue in 20181.

300 million, poor operating performance.

East China Bailing Capsules benefited from the steady growth of grassroots promotion (1Q19 + 15% year-on-year). Both Bailing Tablets and Bailing Capsules have entered the base drug market and are expected to collaborate in the development of the grassroots market.

Wuling Capsule’s 2018 revenue3.

500 million, the potential is still to be developed; 2) East China preparations as a whole showed rapid growth (1Q19 China-US East China +35.9% yoy), the 南京桑拿网 current production capacity is relatively tight.

Zuoli’s production site is only half an hour away from East China, and it is expected to achieve a regional collaborative capacity-relief capacity breakthrough. 3) Although the first acquisition price is more expensive, it is mainly due to the poor sales management of Zuoli.

After East China takes over operations, sales are expected to achieve rapid growth, and the scale effect highlights the increase in net profit margin, which is expected to be digested.

  Risk warning: business integration fails to meet expectations; risks of core product price reduction; product development progress fails to meet expectations.