Kyushutsu (600998) Third Quarterly Report Review: Steady Growth of Core Business and Continuous Optimization of Cash Flow

Kyushutsu (600998) Third Quarterly Report Review: Steady Growth of Core Business and Continuous Optimization of Cash Flow


Event: The company released the third quarter report of 2019.

The company achieved operating income of 733 in the first three quarters of 2019.

79 ppm, an increase of 15 per year.

11%, realizing attributable net profit of 10.

1.9 billion, up 32 each year.

05% (of which non-recurring profit and loss1.

56 ppm, mainly for government subsidies); realized non-attributable net profit8.

62 ppm, an increase of 26 in ten years.


EPS is 0.

54 yuan.

Among them, 19Q3 company realized operating income of 249.

50 ppm, an increase of 17 per year.

15%, achieving net profit attributable2.

75 ppm, an increase of 17 per year.

37%; realized non-attributable net profit2.

45 ppm, an increase of 26 in ten years.


Implement EPS 0.

15 yuan.


Our Analysis and Judgment (I) Wholesale maintained rapid growth. The retail business of the retail and industrial Q3 growth rate reports positive continued to maintain rapid growth, thus the industry average.

Retail and industrial Q3 have resumed positive growth.

In view of different industries, the company’s pharmaceutical wholesale business achieved sales revenue of 707 in the first three quarters of 2019.

3.8 billion (15 + 15.

75%), pharmaceutical retail revenues13.

5.7 billion (six years-6.

41%), pharmaceutical industry sales income11.

05 ten percent (+4).


Among them, Q3 single-quarter pharmaceutical wholesale business revenue was 240.

46 trillion, ten years +17.

46%, maintaining rapid growth, reflecting that the company’s main business is guaranteed to continue to grow in the future; Q3 sales revenue of pharmaceutical retail business is 4.

60 ppm, a ten-year increase2.

50%, the growth rate has turned positive, and the growth rate is still not very high. It is estimated that the company is still adjusting its business strategy and business transformation continues to advance; the pharmaceutical industry Q3 revenue3.

79 ppm, an increase of 12 in ten years.

50% also distort the replacement of the previous Q2.Q3’s growth rate by industry has verified the early retail sales. The short-term growth rate of industrial income is only a transient phenomenon, which does not affect the general trend of the company’s overall steady and rapid growth.

In terms of different products, the company’s core business in the first three quarters of Western medicine, proprietary Chinese medicines achieved sales income of 568.

9.4 billion (+12.

87%); sales of Chinese herbal medicines and herbal medicines 25.

6.2 billion (+5.

79%); revenue from sales of medical devices and family planning products 113.

2.1 billion (+44.

40%), continued high growth rate; food, health products, cosmetics, etc. achieved sales revenue24.

1.2 billion (-17.

(93%), it is estimated that the reporting strategy company continued to adjust the product structure and customer channels of the consumer goods division, resulting in a reduction in the amount of capital occupying some of the commercial channels with low gross profit.

Among them, the single quarter of 19Q3: Western medicine and proprietary Chinese medicines achieved sales revenue of 191.

5.5 billion (+13.

46%); sales of Chinese medicinal materials and Chinese herbal medicines 9.

2 billion (+8.

80%); Revenue from sales of medical devices and family planning supplies 41.

5.6 billion (+55.

72%), the growth rate even continued to increase under the replacement of the high growth rate in the early stage; food, health products, cosmetics, etc. achieved sales revenue6.

7.1 billion (-23.


In terms of financial indicators, the company’s gross profit margin for the first three quarters was 8.

22% (decade +0.


The first three quarters of the company’s sales expense ratio, management expense ratio (broad) and financial expense ratio were 3 respectively.

11% (decade -0.

09pp), 2.

00% (one year-0.

18pp) and 1.

27% (decade +0.

31pp, mainly due to the increase in operating capital required by the company to expand its operating scale, increase in bank borrowings, and the issuance of index securitization assets).

We show the company’s three quarterly expense ratios as shown below. The company’s Q3 sales expense ratio and management expense ratio (in a broad sense) are well controlled, but the financial expense ratio is still at a historically high level.Nominal dividends, but in fact we believe that the company can benefit from the country’s wide interest rate to wide credit, and the future financial expense rate is expected to decrease, thus becoming a potential item for the company’s future profitability.

In addition, the reporting benchmark (July 10, 2019) the company has received a RMB 1 billion 8-year long-term loan from the International Finance Corporation (IFC), a member of the World Bank Group, with an alternative term (8 years) and an earlier lowInterest rate (4.

55%) will help to broaden the company’s financing channels, improve the company’s financing structure, reduce the company’s financing cost, and IFC’s international authority status will also help the company’s future financing image in the market.

(2) The operating quality continued to be optimized, and the cash flow was positive for the second consecutive quarter. The net cash flow of the company’s operating activities for the first three quarters of 2019 was -27.

11 trillion, a substantial increase of 15 over the same period last year.

15 ppm, an increase of 35 in ten years.

84%; of which Q3 single quarter is 2.

8.3 billion, positive for two consecutive quarters, and Q3 increased by 5 compared to the previous quarter.

2%, reflecting the continuous optimization of operating quality.

Considering that the industry generally collects funds in the fourth quarter, we expect the company to optimize its cash flow in the fourth quarter.

In 2019, the company adhering to the business philosophy of “reducing inventory, controlling receivables, and preventing capital risks; expanding terminals, strengthening management, and improving operating efficiency”, and strived to achieve revenue and net profit growth goals while improving operating quality and controlling accounts receivableMoney and 武汉夜生活网 inventory.Therefore, a series of accounts receivables, inventories, prepayments, etc., which accounted for the decline in the proportion of revenues were reported: the company’s accounts receivables increased at the end of the reporting period compared with the same period last year.

5%, the growth rate is less than the revenue growth rate, and the growth rate is also much lower than in previous years. We believe that this is mainly due to the company’s effective control of hospital sales during the accounting period, due to increased sales rebates.

In terms of inventory: At the end of the reporting period, the company’s inventory increased slightly from the same period of the previous year.

74%, the inventory turnover days decreased from 58 days to 54 days.

In terms of prepayments: the company decreased by nearly 2 billion at the end of the reporting period, and will decrease by 50 in the future.


We believe that the company has a high operating capacity in the history of the company, and the consolidation period has slightly lengthened. The company mainly expanded the customers of middle- and high-end medical institutions with secondary level and above. Due to its advantages in the drug circulation chain, its accounts receivable account periodDue to appropriate reductions.

Now consider: 1.

The company will take account receivables, inventory and other assets as one of its operating priorities to focus on improving the operating efficiency of its assets; 2.

The company plans to vigorously develop grassroots and retail terminals in the future. We believe that the company’s account receivables will be effectively controlled this year, so as to achieve a continuous positive net cash flow.


Investment suggestion: The company is the country’s largest private pharmaceutical distribution company. Its national layout of efficient warehouse logistics operation capabilities and rich upstream and downstream resources provide a good foundation for the company’s future rapid development and provide a strong guarantee; the company benefitsAs the national medical reform policy and the concentration of the distribution industry are increasing, the new layout of high-margin business-general-generation business, FBBC is in the ascendant; the medical device field is still in the blue ocean stage of operating horse enclosures; in terms of channels, high-margin basic-level hospitals and drug store wholesale businessesThe sustained and rapid growth has led to the company’s continuous improvement in profitability, and the long-term performance growth rate is higher than the revenue growth rate.

It is estimated that the attributable net profit for 19-21 is about 17.

01 ppm / 21.

12 ppm / 25.

800,000 yuan, corresponding to 0 EPS.

91 yuan / 1.

13 yuan / 1.

37 yuan, corresponding to PE 16/13/10 times.

Maintain the “Recommended” level.


Risk reminders: uncertainty in the medical industry policies such as medical reform; financial risks brought by the company’s expansion.