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China Merchants Securities Zhang Mingfang
The public opinion only sees the company's ability to continuously raise the price of donkey hide gelatin as a resource based product. On this basis, we pay more attention to two profit growth points: 1. The company's four donkey hide gelatin series products (donkey hide gelatin, compound donkey hide gelatin paste, donkey hide gelatin blood enriching granules and blood enriching paste) will be strongly promoted by the company's rapidly improved marketing management ability, Further expand the absolute leading share of the blood supply market; 2. The continuous launch of new high-end health care products will drive the leap forward growth of health food, and the company is expected to grow into a health care product giant with traditional brand advantages.
The company has firmly established a leading brand in the blood supply market. High end products are transforming to health care products. As a Chinese health care product giant with international potential, the company is dormant and stealthy. The health care product subsidiary that used to hold 60% of the shares will be changed into a wholly-owned subsidiary from July 1, 2007. The company will invest in the research of the ancient prescription of donkey hide gelatin, develop a large variety of health care products with high-end pricing and leading to mainstream consumers, and cooperate with the cultural marketing of the declaration of "national and world-class intangible cultural heritage", which will establish the company's position as an authentic strong brand of health care products. The three donkey hide gelatin health care products landing in the Japanese market have taken a big step towards internationalization.
The company's pragmatic and efficient marketing management team has the core competitiveness to promote the upgrading of brand health care products consumption, innovative marketing mode and other aspects to promote sales volume and market demand. 1. Cooperate with many businesses to implement "upstream interception" and "full product distribution, full terminal coverage", including Huiren, Jiuzhoutong Nanjing Pharmaceutical Hefei Grand Pharmacy, Haiwang Galaxy and other well-known commercial enterprises have gained absolute advantages in regional market and national market network sales. 2. The pilot "direct supply" sales model, flat sales channels, and advanced sales management platform have greatly improved the "first push rate" of shop assistants.
Our calculation model shows that the company will achieve the goal of "reinventing donkey hide gelatin" ahead of schedule in 2009, and the sales revenue of donkey hide gelatin series and the revenue of the pharmaceutical industry will double. The long-term investment value of the company's shares has been highly recognized by the market, but the short-term performance may be lower than the expected growth rate of the market due to the increase in operating expenses and the fact that the management's equity incentive mechanism has not yet been introduced. Taking into account that all health care products business will be consolidated, we have improved our performance forecast. It is expected that the net profit will increase by 35% in the five years from 2006 to 2010, and the net profit will increase by 39%, 56%, 46% and 43% respectively year on year from 2007 to 2010, amounting to RMB0.41, RMB0.64, RMB0.93 and RMB1.33 respectively. The estimated value of DCF is 34 yuan per share, and the target price within one year calculated according to the 50 times PE (PEG0.93) given by EPS in 2008 is 32 yuan (including warrants, before ex right). There will be another power grab for the company's warrant listing, and the rating of "strongly recommended" will be maintained.
Our constant and firm recommendation and recent changes of the company:
1. On May 1, 2006, the new management team of the company took office. At a time when the market was still uncertain about the sales management ability of the company's new management, on July 10, 2006, we took the lead in the industry to upgrade the company's investment rating to "strongly recommended", launched the report "Dong'e donkey hide gelatin - the establishment of business inflection point, and the start of consumption upgrading," and approved the company's new pragmatic and efficient marketing management team's correct product strategy The business strategy and the core competitiveness of promoting the "consumption upgrading" of branded consumer goods have laid a strong guarantee for the company's sustainability, speed and health in the next 10 years. The long-term investment value of the company as a "pharmaceutical blue domain of consumption upgrading" stock can not be ignored.
2. Under the leadership of Mr. Qin Yufeng, the general manager, the company's operation has been changing with each passing day, which is why we have invited Mr. Qin to attend the annual and medium-term investment strategy meetings of China Merchants Securities for three consecutive times. On April 12, 2007, when the company announced the 2006 Liangli Annual Report, we organized another face-to-face performance communication meeting between senior executives of listed companies and institutional investors, in order to continuously convey the long-term investment value of "Dong'e Ejiao" to the market.
3. From July 1 of this year, the health care product subsidiary that used to hold 60% of the shares will be changed into a wholly-owned subsidiary, with 100% consolidated statements. The company seeks to break through the limitations of drug market demand and the government's price control on medical insurance catalog drugs, and starts to extend to a broader health care product market, especially the transformation of high-end products to health care products, which will open up a higher profit margin in the future.
Differences between us and public opinion:
The public opinion only sees the company's ability to continuously raise the price of donkey hide gelatin as a resource based product. On this basis, we further identify two profit growth points: 1. The company's four donkey hide gelatin series products (donkey hide gelatin, compound donkey hide gelatin paste, donkey hide gelatin blood enriching granules and blood enriching cream) will be strongly promoted by the company's rapidly improved marketing management ability, Further expand the absolute leading share of the blood supply market; 2. The continuous launch of new high-end health care products will drive the leap forward growth of health food, and the company is expected to grow into a health care product giant with traditional brand advantages.
1. The first five years of rapid growth (2006~2010): while establishing and expanding the absolute leading brand in the blood supply market, the company extended its industrial chain to high-end nourishing health care products. Therefore, the company's performance growth must not be simply understood as "Moutai style" growth relying on price increase profits. The mass sales of donkey hide gelatin series medicines and nourishing health care products, the release of high profits from high-end new products, and the price increase will jointly promote the promotion of donkey hide gelatin nourishing health care products to consumption upgrading.
2. The second five-year rapid growth (2011-2015): acquisition and integration of donkey hide gelatin industry, expansion of market share of donkey hide gelatin products to more than 90%, resulting in a relative monopoly. Internal factors such as conservation of donkey hide resources, construction and optimization of a complete donkey hide gelatin industrial chain, innovation of marketing mode, and external factors such as increasingly standardized national supervision have helped the company grow into a giant of donkey hide gelatin nourishing series of health products.
In a word, the company's product strategy and business strategy are very clear, reasonable and effective, ensuring the company's sustained, rapid and healthy development of performance. A blue chip medicine worth investing in for 10 years should not be missed.
First, the industrial focus has shifted from "medicine" to "health care products", especially the transformation of high-end products to health care products, and the development of the domestic high-end gift market. In the recent capital operation, the equity of the health care product subsidiary has been closed to 100%, which has laid the foundation for the premise. If Dong'e donkey hide gelatin is only positioned as "medicine", it will inevitably be affected by the NDRC's price control on medical insurance catalogue products. It is far from having the continuous price raising ability like "Maotai liquor". Only by extending to the broader "health care products" market can it show the independent pricing ability of the brand nourishing top products for more than 2000 years. It is estimated that the price of "excellent donkey hide gelatin" will be 2000 yuan per kilogram Will lead the way.
Second, implement the "cultural marketing strategy" to enhance the brand value of "Dong'e donkey hide gelatin". According to the records in Shennong's Classic of Materia Medica and Li Shizhen's Compendium of Materia Medica, the category of donkey hide gelatin is re positioned as one of the three major nourishing treasures alongside ginseng and deer antler. Through association and taking advantage of the strong and stable position that "ginseng and deer antler" have established in the minds of consumers, the value of donkey hide gelatin as a "top nourishing product" is rapidly promoted and highlighted, and through unified brand packaging, Improve consumer discrimination and awareness.
Third, launch the "Ejiao value return project" to lead Ejiao products back to mainstream consumers. Popularized donkey hide gelatin is aimed at the original consumers and improves the value of brand products by raising prices; According to the principle of "medicine and food come from the same source", donkey hide gelatin is both medicine and food. It uses high-quality donkey hide resources and exquisite and unique traditional technology to produce the "best donkey hide gelatin" for high-end consumers and gift markets.
Fourth, integrate sales resources, focus on distribution and terminals, and expand market depth and breadth. The national market is divided into 4 sales regions and 28 offices, implementing "full product distribution" and "full terminal coverage", and continuing to implement three major campaigns: deep distribution, terminal strengthening, and price arrival. The products and markets are focused, breakthrough and trial layout respectively according to the "721 principle", 70% of which are focused first line products (donkey hide gelatin, compound donkey hide gelatin paste) and first line markets (Guangdong, Sichuan, Zhejiang, Shandong, Anhui, Hubei); 20% are the second tier products (Ejiao Buxue Granules, Ejiao Buxue Paste, Ejiao Yuanjiang, Hailong Jiaokou Oral Liquid) and the second tier market regions (Jiangsu, Chongqing, Shanghai, Hebei, Hunan, Henan, Beijing, Yunnan, Jiangxi, Shaanxi) that need to achieve breakthroughs; 10% are other non donkey hide gelatin products (EPO, yellow gelatin, Angong Zhixue Granules, etc.) and emerging markets (Xinjiang, Lanzhou, Tianjin, etc., Southeast Asia, Europe, and the Americas).
Fifth, adhere to market-oriented, implement "marketing management innovation", and promote sales volume and market demand from multiple perspectives. 1. Strategic cooperation was carried out with well-known pharmaceutical commercial enterprises such as Jiuzhoutong, Haiwang Yinhe and Jiangxi Huiren to implement cooperation on a full range of products (including drugs, health products and medical devices). 2. The company began to implement the "direct supply" sales model in 2007, with flat sales channels, greatly strengthening the control of terminal sales and prices. 3. The advanced sales terminal management platform, franchised stores, store in store and image stores have greatly improved the "first push rate" of shop assistants and the purchase rate of consumers.
Sixth, the marketization method conserves donkey hide resources, vigorously builds the donkey industry ecosystem, extends the value chain of donkey hide gelatin industry to the upstream, and the marketization promotes the integration of donkey hide gelatin industry. The company has established 13 donkey breeding bases in key donkey breeding areas nationwide, and the number of donkeys in the areas covered by the bases has increased by 16%. The company expects that at the end of 2008, the supply of donkey hide will start to rise, and the output of donkey hide gelatin will rise in 2009.
Since January 1 this year, the company has raised the ex factory prices of donkey hide gelatin and compound donkey hide gelatin paste by 30% and 8.5% respectively. The market is generally concerned about the sales changes of major products after the price increase. The company has given a perfect answer: the sales volume of donkey hide gelatin paste increased by 64% year-on-year, that of compound donkey hide gelatin paste increased by 25% year-on-year, that of donkey hide gelatin blood enriching granule increased by 81% year-on-year, that of donkey hide gelatin blood enriching cream increased by 31% year-on-year, and that of health products increased by 19.1% year-on-year, Other products increased by 14% year on year.
Before we go into details, we will give an overview of the company's product system, product strategy and business strategy.
1、 "Drug Approval" Ejiao establishes a leading brand in the blood enriching market, and steadily moves forward with incremental price increase
With a history of more than 2000 years, Dong'e brand donkey hide gelatin is a "holy product" for blood tonic and health care. It has eight major effects, including blood tonic and hemostasis, beauty and beauty, immunity enhancement, nourishing and health care, and tumor suppression. Its blood tonic effect is definite. The four main products of donkey hide gelatin series, which are composed of donkey hide gelatin and compound donkey hide gelatin paste, donkey hide gelatin blood tonic granules and donkey hide gelatin blood tonic paste, accounted for 58.1% of the retail terminal blood tonic market in 15 cities nationwide in 2006, an increase of 4.2% year on year, and has firmly established an absolute leading brand in the blood tonic market.
For a long time, Beijing has been a relatively weak sales area for Dong'e Ejiao, which belongs to 20% of the key market in the company's strategic plan. With the solid promotion of the company's focus on distribution and terminals, it is becoming a leading blood tonic brand in the Beijing market.
1. "Compound Ejiao Syrup": a popular leading brand for blood tonic. In the future, it will continue to close the blood tonic market. Compound Ejiao Syrup is the exclusive variety of Dong'e Ejiao, a national confidential variety of traditional Chinese medicine with secret formula and a national protected variety of traditional Chinese medicine. Since its listing in 1979, it has been nearly 28 years, and its cumulative sales have exceeded 11 billion tubes. At present, it is mainly sold in 10 cities in 6 provinces, including Sichuan, Anhui, Shandong, Hubei, Chongqing, Guangdong, Shaanxi and Jiangsu. The share of compound donkey hide gelatin paste in China's provincial and prefecture level blood tonic market is up to 65%, and has firmly established a leading brand in the blood tonic market. We believe that, driven by a series of business strategies of the company, the share of compound donkey hide gelatin paste with high quality and price and the highest cost performance ratio in the blood tonic market will continue to rise, and the blood tonic market will be closed year by year.
The exclusive cooperation with a number of first level strategic partners will rapidly increase the terminal sales and market share. This year, it will join hands with a number of first level businesses in strategic cooperation to implement cooperation on a full range of products (including drugs, health products and medical devices). Including Jiuzhoutong, Haiwang Yinhe, Jiangxi Huiren, Nanjing Pharmaceutical, Hefei Pharmacy and other well-known commercial enterprises that have obtained absolute advantages in regional market and national market network sales.
The market supply was adjusted internally to guide consumers from donkey hide gelatin block to compound donkey hide gelatin paste. Chengdu market is one of the main sales areas of compound donkey hide gelatin paste. In order to further guide consumers from donkey hide gelatin block to compound donkey hide gelatin paste, the company's supply of donkey hide gelatin (block) to Chengdu this year was reduced from 50 tons per year to 30 tons.
There is still broad space for OTC market at county level and below. Since 2006, companies have implemented downforce deep distribution in OTC market in a down-to-earth manner. In 2006, the company selected 200 counties, 2000 health centers and 3000 pharmacies and clinics nationwide to carry out in-depth distribution, achieving a 31% increase in sales of key terminals. In the future, the company will lay out a broader market area and continue to implement in-depth distribution in county-level and below markets.
For a long time, the packaging of "Compound Ejiao Jelly" is mainly simple packaging of 12 pieces per box for self use people. To meet the needs of consumption upgrading and the gift market, the company officially launched the "compound donkey hide gelatin paste" in a box of 48 gifts this year, aiming to promote and expand the gift market.
The ex factory price of 12 pieces of boxed compound donkey hide gelatin paste was increased by 8.5% on January 1 this year. It is unlikely to continue to increase in the future because its terminal retail price has not been in place. The company has increased its ex factory price by 8.5% since January 1 this year. However, Compound Ejiao Syrup is a medical insurance catalog product, and the drug price limits implemented by the provincial and municipal price bureaus across the country have brought some difficulties to the price increase of compound Ejiao Syrup. This year, the company actively tackled key problems, and made use of the advantages of high quality and high price of compound A-mucilage (the highest cost performance among national confidential varieties, national protected varieties, and similar products) to promote the price of this product to rise steadily and gradually. We expect that it is unlikely that the price of this variety will continue to increase in the future.
Expert exchange, academic promotion and other models to expand the hospital market In 2006, the sales scale of several products in the hospital, such as Compound Ejiao Jelly, Ejiao Buxue Granules, Angong Zhixue Granules, was only more than 30 million yuan. Therefore, the hospital market still has great potential. This year, the company will transform the research results of the secondary development of "Compound Ejiao Syrup" into marketing results through expert exchange, academic promotion and other modes.
Since the 250ml package of each bottle does not conform to the daily and daily hygiene habits of consumers, this specification will be gradually eliminated in the market. The company does not regard bottled donkey hide gelatin paste as a development specification.
2. The popular donkey hide gelatin block is aimed at the original consumers, and the price is moderately raised to improve the brand value. Since ancient times, donkey hide gelatin, ginseng and deer antler have been listed as the "three treasures" of nourishing. The company will refer to ginseng and deer antler for its value return. At present, the highest retail price of donkey hide gelatin for medicinal materials approved by the government is 360 yuan per kilogram. At present, the terminal retail prices in Beijing and other markets have been in place. The prices in some market areas are still not in place, and it is expected that the company will not raise prices again this year.
We conservatively predict that the company will continue to increase the ex factory price of donkey hide gelatin by 10% in 2008 and 2009 respectively. In order to promote the value return of "Dong'e Brand" donkey hide gelatin, the company will continue to moderately increase the price to enhance the brand value. The price of reference ginseng is 2000 yuan per kg, and the price of deer antler is up to 10000 yuan per kg. We expect that the retail price of donkey hide gelatin for mass consumers will rise to about 700 yuan per kg in 2020.
Our calculation model shows that the sales scale of donkey hide gelatin will reach 510 million yuan in 2009, contributing about 260 million yuan of net profit.
3. Aiming at the high-end market and using the traditional unique process of high-quality donkey hide resources to develop the best donkey hide gelatin, which reflects the independent pricing of donkey hide gelatin. It is not only a medicine with definite curative effect, but also a health care product with multiple health care functions. The company takes advantage of the high-quality donkey hide of Dezhou Pure Black, aims at high-end consumer groups, builds an ancient production line, and restores the ancient production mode of gold pot and silver shovel, Developed the best donkey hide gelatin with traditional unique technology. The sales price of this kind of health food can avoid the government's control on the price of drugs, and can be positioned at the high-end, which can fully demonstrate the independent pricing ability of brand nourishing health products.
It is reported that the best donkey hide gelatin will be launched to the market in the Mid Autumn Festival this year, focusing on the gift brand of holiday gifts and health care products. The price is about 2000 yuan per kilogram.
2、 High end health products lead health food to open more profit space
More than 50 enterprises have obtained the production approval for donkey hide gelatin, and more than 20 are still producing it. However, the demand space of the drug market is obviously less than that of health care products.
If Dong'e donkey hide gelatin is only positioned as "medicine", it will inevitably be affected by the NDRC's price control on medical insurance catalogue products. It is far from having the ability to continuously raise prices like "Maotai liquor". It is only necessary to extend the donkey hide gelatin industry from "medicine" to a broader "health food" market, especially high-end products to health products. It is enough to show the independent pricing ability of the brand tonic for more than 2000 years.
1. "The best donkey hide gelatin" is positioned at high-end nourishing health food, fully reflecting its independent pricing ability. "Dong'e donkey hide gelatin" has been awarded the intangible cultural heritage of Shandong Province and China's time-honored brand. At present, it is applying for national and world level intangible cultural heritage. The company has launched seven measures to protect "intangible cultural heritage", one of which is to build an ancient production line and restore the ancient production mode of gold pot and silver shovel. Therefore, the best donkey hide gelatin priced at 2000 yuan per kilogram came into being.
As mentioned above, the high-end positioning of the "best donkey hide gelatin" can fully demonstrate the independent pricing ability of the brand donkey hide gelatin in 2000. The company will enter the gift market and high-end consumer groups in many channels, such as franchised stores, image stores, pharmacies and stores in supermarkets. We expect to achieve annual sales of 50 million yuan, 100 million yuan, 300 million yuan and 400 million yuan respectively from 2007 to 2010, starting from the listing in August this year.
2. The health product company returns to the parent company, shares the resources of the marketing system, and achieves leapfrog growth in the series of health food. From July 1 this year, the health product subsidiary that used to hold 60% of the shares will be changed into a wholly-owned subsidiary, with 100% consolidated statements. The company's popular Ejiao health food includes more than 20 products, including Ejiao Yuanjiang, Ejiao Crystal Jujube, Ejiao Jinsi Jujube Series, Ejiao Soft Capsule, Ejiao Zhuanggu Oral Liquid, etc. The sales volume in 2006 reached 52 million yuan.
Sales channels were broadened, and donkey hide gelatin health products doubled rapidly.
In 2007, donkey hide gelatin health care products went out of the original narrow sales area and entered the supermarket networks such as Home World in Shenzhen and 10 China Resources supermarkets in Beijing. In the first quarter of this year alone, the sales volume has reached more than 40 million yuan.
The best donkey hide gelatin will drive the rapid growth of sales of popular donkey hide gelatin health food.
The strong cultural marketing of premium donkey hide gelatin will create a favorable atmosphere for the marketing of donkey hide gelatin nourishing health care products and promote the leap forward growth of the whole series of health care products.
We estimate that the sales of health food, including the best donkey hide gelatin, will reach 250 million yuan, 500 million yuan, 900 million yuan and 1.4 billion yuan respectively from 2007 to 2010, contributing about 150 million yuan, 300 million yuan, 540 million yuan and 840 million yuan of gross profit respectively.
3. Ejiao health care products landed in the Japanese market and took a big step towards internationalization. Japan and South Korea are the countries with the deepest consumption habits of health care products in the world. Japan alone has an annual market demand capacity of 600 million yuan. The company has conducted in-depth research on the Japanese health care product market, fully listened to the opinions of medical experts and businesses, combined the clinical ancient prescription with modern technology on the basis of traditional donkey hide gelatin products, developed and produced a new generation of donkey hide gelatin health care products in Japan through the cooperation of scientific researchers from China and Japan.
The company's first batch of health products entering Japan included three: Peach Blossom Hyacinth, Health and Tortoise Deer Two Immortals Soup. It is estimated that the lowest sales volume this year is 600 million yen, which is expected to reach 1 billion yen. By entering the Japanese market, the quality of the company's products was tempered, the level of the company's research and development of health products was strengthened, and the international competitiveness of the company's donkey hide gelatin health products was improved.
We believe that the international pace of donkey hide gelatin health care products and the domestic transformation to health care products echo each other, promote each other, and jointly promote the company to grow into a giant of donkey hide gelatin nourishing health care products.
3、 The company has innovated its marketing model, and the sales of drugs and health care products are growing rapidly together. Since the new general manager took office in May 2006, the company has adjusted its marketing system. The country is divided into three regions, six offices are added, and the number of primary dealers is reduced to 60, effectively putting an end to fleeing goods. The company has established market-oriented marketing management innovation. In 2006, the company built a series of digital and advanced sales process and terminal sales management platforms such as DP/DRP, which greatly improved the "first push rate" of shop assistants. The "first promotion rate" of retail pharmacy staff in Guangzhou reached 90%.
Since the beginning of 2007, the company has made a series of achievements in marketing model innovation:
1. The first level strategic partners with the sole purpose of implementing "upstream interception" and "full product distribution, full terminal coverage" have identified Huiren, Jiuzhoutong, Haiwang Galaxy and other companies. A number of strategic partners will sign strategic cooperation agreements before the end of August 2007. These strategic partners are well-known commercial enterprises that have achieved absolute advantages in regional market and national market network sales, such as Jiuzhoutong, Nanjing Pharmaceutical, Huiren, Hefei Pharmacy, etc.
2. Implement the "direct supply" sales model. The more stable and unified the terminal price will be if the product is sold directly to the terminal and the sales channel is flat; At the same time, the improvement of terminal profit margin is more conducive to the promotion of terminal sales. The company will complete direct supply to thousands of sales terminals by the end of 2007.
4、 Acquisitions and integrations of donkey hide gelatin enterprises, health care products, etc. 1. Fake donkey hide gelatin is full of low-end markets, and it is necessary for brand enterprises to purchase and integrate. At present, there are more than 20 large and small donkey hide gelatin manufacturers holding production approval documents in China. Dong'e donkey hide gelatin accounts for 90% of the market for raw donkey hide, but its market share of donkey hide gelatin is only 50%. The real reason for the mismatch between the raw material share and the product share is the existence of fake donkey hide gelatin in the market. The production cost and selling price of these fake donkey hide gelatin are extremely low, which will interfere with the price increase and value return of the brand Dong'e donkey hide gelatin. Therefore, it is necessary for the company to purchase, integrate and standardize the donkey hide gelatin industry.
2. The company "first integrate within the province, then integrate outside the province" has determined the framework of first acquiring within the province, then integrating outside the province. The donkey hide gelatin production enterprises in Shandong Province are not only Fujiao Group, but also many small workshops. Most of them do not have a clear source of donkey hide raw materials, and only produce low-end donkey hide health food.
According to the company's vision, in 2008, the company will use part of the financing of the warrant to acquire donkey hide gelatin tonic production enterprises, and these acquired donkey hide gelatin production enterprises, because they are located in the donkey production area, will evolve into the company's donkey breeding base.
We believe that the fast growth track of Dong'e Ejiao's performance after the relative monopoly will be similar to that in 2002 Yunnan Baiyao It can be expected that the company will become a big donkey hide gelatin industry and grow into a pharmaceutical industry company with a large market value.
5、 Raise the industrial barrier of donkey hide gelatin, conserve donkey hide resources and build a complete industrial chain. 1. Secure production process of donkey hide gelatin, secret formula and variety of donkey hide gelatin paste, origin mark and other heightened industrial barriers. The production process of modern donkey hide gelatin is China's secret production process. Compound donkey hide gelatin paste enjoys the confidentiality of national secret formula and variety, and "Dong'e" brand donkey hide gelatin enjoys the registration of origin mark, "Dong'e" brand was selected as one of the first national key protected brands. These parts that constitute the declaration of "intangible cultural heritage" are the external barriers for the company to stand on the donkey hide gelatin industry.
2. The secondary development of donkey hide gelatin has entered the national "11th Five Year Plan" key science and technology planning company and many universities and research institutes such as Beijing University of Traditional Chinese Medicine to carry out the secondary development of donkey hide gelatin. Many years ago, the company cooperated with East China University of Science and Technology to establish Shanghai Ahua Bioengineering Research Institute to study the DNA fingerprint of donkey hide gelatin. It is expected that this technology will be included in the national pharmacopoeia and put into use as a routine detection method to identify true and false donkey hide gelatin before 2010.
At present, the compound donkey hide gelatin paste has passed the technical review for national confidentiality, and the DNA fingerprint technology has been applied to the standard research of compound donkey hide gelatin paste. The secondary development of donkey hide gelatin has entered the national "11th Five Year Plan" key scientific and technological plan.
3. Market oriented construction of donkey ecological industrial chain, multi-level control of donkey skin resources Since 2006, the company has made strategic adjustment, innovated the construction mode of donkey breeding bases, established 13 bases in key donkey breeding regions of the country with the purpose of creating an ecosystem of donkey industry, established a donkey industry research institute, formulated the Classification and Division Standards for Donkey Meat, and held two commercial donkey industry summits, The prototype of the commercial donkey industry chain with the participation of government, industry, research and farmers has been formed, and the enthusiasm of the government and farmers has been greatly improved. The price of each donkey has increased by 500-600 yuan, and the number of donkeys in the area covered by the base has increased by 16%. The donkey meat will become a high-end food.
The company is the only long-term enterprise in the donkey hide gelatin industry that extends to upstream raw materials and builds a complete industrial chain. The company has established 11 donkey breeding bases, including Yili in Xinjiang, Zhangye in Gansu, Longnan in Gansu, Qingyang in Gansu, Chifeng in Inner Mongolia, Fuxin in Liaoning, Wudi in Shandong, Linyi in Shanxi, Qinyang in Henan, Hotan in Xinjiang, Kashi in Xinjiang, and will continue to build 2 new donkey breeding bases in 2007, reaching 13. The company has established and opened a donkey industrial network, and there are 226 government enterprises willing to cooperate with the company to establish donkey breeding bases.
Internationally, the company has obtained the import license of donkey skins from Egypt, Peru and Brazil. In 2006, 203 tons of donkey skins were imported, a year-on-year increase of 1.5 times.
4. The supply of donkey hide and the output of donkey hide gelatin will increase in the future, and the price of donkey hide and donkey hide gelatin will keep rising. We expect that, with the reflection of the conservation role of donkey hide resources by donkey breeding bases, the supply of donkey hide will gradually increase from the second half of 2008, and the output of donkey hide gelatin will also increase accordingly.
In order to continuously improve the comprehensive economic value of raising donkeys and promote the enthusiasm of farmers to raise donkeys, according to the company's "meat for skin" strategy, we believe that the price of donkey skin will continue to rise, about 10% annually. The price of donkey hide gelatin products will also maintain a corresponding upward trend.
6、 Innovate cultural marketing and improve the high-end brand image of Dong'e donkey hide gelatin. The traditional Chinese medicine culture of Dong'e donkey hide gelatin has been included in the first batch of intangible cultural heritage protection list in Shandong Province. At present, the declaration of national "intangible heritage" and world "intangible heritage" is under way.
2. Apply for intangible cultural heritage and introduce seven "intangible cultural heritage" protection measures. 1. From June 9, 2007, collect folk prescriptions and cultural relics of donkey hide gelatin in big pharmacies and Dong'e donkey hide gelatin specialty stores in 10 cities including Beijing, Shanghai, Chengdu, Hangzhou, Guangzhou and Jinan; 2. Build an ancient production line, restore the ancient production mode of gold pot and silver shovel, and introduce the best donkey hide gelatin; 3. Cooperate with Shandong, Chengdu and other universities of traditional Chinese medicine, invest in research and development of donkey hide gelatin ancient prescription, and develop large varieties of donkey hide gelatin health products according to the principle of simultaneous development of medicine and food; 4. We will resume the practice of guiding students with teachers, and cooperate with colleges and universities of traditional Chinese medicine to train 200 senior Ejiao pharmacists and technicians with rich practical experience and high theoretical level; 5. Establish 20 donkey breeding bases nationwide to conserve raw material resources for future development; 6. Publicize the traditional Chinese medicine culture of donkey hide gelatin by opening a lecture hall on traditional Chinese medicine culture of donkey hide gelatin, holding a tour exhibition of donkey hide gelatin museum in urban and rural communities, etc; 7. Cooperate with the local government to protect the groundwater resources in East Afghanistan.
7、 Profit forecast: maintain healthy and rapid growth in the next 10 years
1. Basic assumptions for profit forecast:
1. The ex factory price of donkey hide gelatin will not increase in 2007, but will increase by 10% every year after 2008; 2. From the second half of 2008, the supply of donkey hide will gradually increase, the price of donkey hide will increase by 10% every year, and the output of donkey hide gelatin will start to rise synchronously.
3. The price of compound donkey hide gelatin paste will no longer be raised, and the sales volume will increase by 20% annually; 4. Health food sales grew rapidly; From 2007 to 2010, they accounted for 20%, 29%, 37% and 43% of the sales revenue of the pharmaceutical industry respectively; 5. From 2007 to 2010, the operating expense rate was 28%, 27.5%, 27.5% and 26.5% respectively, and the management expense rate was 11%, 11.5%, 11.5% and 11.5% respectively, which was higher than the operating rate of 23.9% and the management rate of 9.9% in 2006.
2. Prediction results: the company will achieve the goal of "rebuilding one donkey hide gelatin" in 2009. Our calculation results of sales revenue of donkey hide gelatin series and revenue of pharmaceutical industry show that the company will achieve the goal of "rebuilding one donkey hide gelatin" in 2009 ahead of schedule. Popularized donkey hide gelatin series drugs and health care products are sold in large quantities, high-end new products release high profits, and prices are raised to jointly promote the consumption upgrade of donkey hide gelatin health care products.
Considering that all the health care products business will be consolidated, we raise the performance forecast that from 2007 to 2010, the main revenue will increase by 39%, 36%, 42% and 34% respectively year on year, and the net profit will increase by 39%, 56%, 46% and 43% respectively year on year, which is equivalent to EPS of 0.41 yuan, 0.64 yuan, 0.93 yuan and 1.33 yuan respectively.
If the Bermudian warrant issued by the company to all shareholders in 2008 is taken into consideration, 2.5 shares are subscribed for every 10 shares. Assuming full exercise, the total share capital of the company will be expanded by 25%, then the corresponding earnings per share for 2008-2010 are 0.51 yuan, 0.74 yuan and 1.06 yuan.
8、 Valuation analysis and investment advice: buy and firmly hold for more than five years
1. The DCF valuation analysis of the company is based on the latest 523.76 million shares of capital stock and the 2007 forecast EPS of 0.41 yuan. We conducted a DCF valuation of the company, which shows that the reasonable value of equity per share is 34.5 yuan, and the implied forecast PE for 2007-2010 is 84 times, 54 times, 37 times and 26 times respectively.
2. PE valuation: 50 times valuation hub and investment rating of "strongly recommended - A":
The first five-year rapid growth period (2006~2010): while establishing and expanding the absolute leading brand in the blood supply market, the company extends the industrial chain to high-end health care products, and jointly promotes the consumption upgrading of donkey hide gelatin health care products from three aspects: the sales volume of popular donkey hide gelatin series drugs and health care products, the release of high profits from high-end new products, and the promotion of value return by raising prices.
The second five-year rapid growth period (2011-2015): acquisition and integration of donkey hide gelatin industry, expansion of market share of donkey hide gelatin products to more than 90%, resulting in a relative monopoly. Conservation of donkey hide resources, construction and optimization of a complete donkey hide gelatin industry chain, innovation in marketing mode, increasingly standardized national supervision, and cooperation to promote the company to grow into a giant of donkey hide gelatin health products.
The company's product strategy and business strategy are very clear, reasonable and effective, which ensure the company's performance to develop continuously, rapidly and healthily. A pharmaceutical blue chip prototype worth investing for 10 years has taken shape. We believe that 50 times of PE valuation is not too much.
According to the target price of RMB 32 (including warrants, before ex right) within one year calculated by 50 times of PE Central (equivalent to PEG0.93) given by EPS in 2008, there will be another power grab for the listing of the company's warrants, and the rating of "strongly recommended" will be maintained.
9、 Risk analysis:
The long-term investment value of the company's stock has been highly recognized by the market, but the short-term performance may be lower than the expected growth rate of the market:
1. Increase in operating expenses; 2. The management's equity incentive mechanism has not yet been introduced. 3. The company's performance is seasonal, and the second and third quarters are relatively slack, resulting in the growth rate of the mid report and the third quarter's performance lower than the market's expectations.
Historically, the seasonal consumption characteristics of donkey hide gelatin in autumn and winter make the company's performance in the second and third quarters relatively low, and the fourth quarter is the peak season of the whole year. In 2006, the new management brought forward the sales season, and November became the end of the year. Therefore, the third quarter saw a large month on month increase.
Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.
