20171120-兴业证券-东阿阿胶-000423.SZ-The_new_round_of_price_rise_paves_way_for_future_growth._4页_214kb

Summary of Dong-E-E-Jiao (000423.SZ) Analysis

Core Content

Dong-E-E-Jiao (000423.SZ) is a privately held company specializing in the development and production of traditional Chinese medicine products, with a focus on Chinese herb medicine and health products. The company is particularly known for its high-end product, E-Jiao (donkey-hide gelatin), which is a key revenue contributor.

Key Financial Data (Nov. 20, 2017)

• Closing Price: CNY 63.55
• Total Shares (Mn): 654.02
• Shares Outstanding (Mn): 653.87
• Market Cap (CNY/Mn): CNY 41,563.07
• Market Float (CNY/Mn): CNY 41,553.27
• Net Assets (CNY/Mn): CNY 9,008.17
• Total Assets (CNY/Mn): CNY 10,918.92
• BVPS: 13.77

Revenue Breakdown (Dec 31, 2016)

• Operating Revenue: CNY 6,317.14 Mn
• Revenue by Product:
  • 1. E-Jiao series: CNY 5,370.54 Mn (85.0%)
  • 2. Medicine transaction: CNY 265.64 Mn (4.2%)
  • 3. Other major businesses: CNY 668.78 Mn (10.6%)
  • 4. Other businesses: CNY 12.18 Mn (0.2%)

Analyst and Investment Rating

• Analyst: XU Jiaxi (xujiaxi@xyzq.com.cn)
• Assistant Analysts: HUANG Hanyang, PAN Mengchen
• Investment Rating: BUY

Key Events

• Price Increase: The company announced a price increase of 10% for Dong-E donkey-hole gelatin and 5% for compound donkey-hole gelatin pulp.
• Impact: The price increase is seen as a moderate strategy, helping to deal with rising costs and compensate upstream donkey farmers. It is expected to stabilize the company's earnings and improve long-term profitability.

Main Views and Key Information

• Price Raise Strategy:

  • The price increase helps consolidate the company's position in the high-end medical consumer products market.
  • The company is shifting focus from low-end to high-end markets, targeting premium customers.
  • The price raise is expected to improve the company's profitability and support sustainable development.

• Earnings Performance:

  • Sales Revenue (2017 Q3): CNY 4.48 billion, up 12.45% YoY.
  • Net Profit Attributable to Parent Company (2017 Q3): CNY 1.25 billion, up 1.69% YoY.
  • Earnings Growth Forecast (2017-2019):
    • 2017E: CNY 2,046 Mn
    • 2018E: CNY 2,314 Mn
    • 2019E: CNY 2,657 Mn
  • EPS Forecast (2017-2019):
    • 2017E: CNY 3.13
    • 2018E: CNY 3.54
    • 2019E: CNY 4.06

• Valuation Ratios:

  • PE (2017E): 20.32x
  • PE (2018E): 17.96x
  • PE (2019E): 15.64x
  • PB (2017E): 4.23x
  • PB (2018E): 3.43x
  • PB (2019E): 2.81x

• Market Outlook:

  • The company's products are considered cost-effective compared to other high-end TCM products.
  • The company is expected to achieve double-digit earnings growth for the full year of 2017.
  • With the arrival of the fourth quarter consumer season, sales of the E-Jiao series are expected to resume growth.

• Supply and Demand Dynamics:

  • The supply of donkey hides continues to tighten due to declining numbers of donkeys available for sale.
  • Donkey-hide prices have risen significantly over the years, from CNY 20 to over CNY 2,000 per piece.
  • The price increases are expected to alleviate supply shortages and maintain profitability.

Potential Risks

• The price of donkey-hide and other raw materials may rise sharply than expected.
• The fourth quarter earnings growth may fail to meet expectations.

Investment Rationale

• The company is a leader in the donkey-hide gelatin industry, with strong pricing power and a well-established sales network.
• The price increase strategy is part of its efforts to reflect the true value of its products and attract more investors.
• The company's growth in net profit and EPS is expected to continue, supported by its focus on high-end markets and cost control measures.

Conclusion

The company's price increase strategy is seen as a positive move that supports its long-term growth and profitability. Despite a slowdown in earnings growth during the first three quarters of 2017, the company is expected to achieve steady double-digit growth for the full year. The BUY rating is maintained due to its strong market position, cost management, and strategic focus on high-end TCM products.