July 13,2020

In the evening of July 12, Yiling Pharmaceutical released the performance forecast for the first half year. In the first half of this year, the company achieved a net profit attributable to shareholders of 682 million to 728 million Yuan (USD 97.4 million to 104 million), an annual increase of 50%-60%, with basic earnings of 0.57 - 0.60 Yuan per share, and the strong growth momentum of the first quarter persists.

In 2019 Yiling Pharmaceutical achieved a net profit of 606.5 million Yuan. The net profit of the first half in this year already exceeds that of the whole year last year.

According to Yiling Pharmaceutical, there are two main reasons accounting for the surge in revenue: On the one hand, sales revenue of Lianhua Qingwen in the first half of this year saw a rapid growth compared with the same period last year. Lianhua Qingwen has also experienced a remarkable year-over-year rise in sales in the second quarter as the popularity and reputation of the product advance at home and abroad. On the other hand, the outbreak of COVID-19 was well contained in the second quarter, coupled with the fact that the company was granted the First Prize of China's National Science and Technology Progress, which has greatly enhanced the influence of the company on the market of cardio-cerebrovascular products. The sales revenue of these products achieved growth in the second quarter.

The Second Quarter Performance Exceeds Market Expectations

Yiling Pharmaceutical's performance forecast of the first-half of this year has attracted widespread attention in the market. Due to COVID-19, it was generally believed that the growth rate in the first quarter would serve as the peak of this year's growth. With the domestic outbreak well under control in the second quarter, the company's growth rate would go downward quarter by quarter, but according to the company's performance forecast of the first half year, the growth rate in the second quarter could very likely be surpassing that of the first quarter, which exceeds the market expectations.

The published statistics show that in the first quarter of this year, Yiling Pharmaceutical achieved an operating revenue of 2.334 billion Yuan, a year-on-year increase of 50.56%. The net profit attributed to shareholders was 437 million Yuan, up by 51.88% year-on-year.

"Judging from the trend of net profit of Yiling Pharmaceutical in recent years, it is estimated that the revenue growth rate in the second quarter should also be more than 50%, with which the company will further consolidate its leading position in the traditional Chinese medicine industry", said a brokerage analyst.

At the end of the first half year of 2020, the financial data company Wind released a list of "Top 500 Publicly Traded Chinese Companies for the First Half Year 2020". The statistics were collected until June 30. The entry threshold of the list this year was risen to 31.2 billion Yuan, an increase of 5.1 billion Yuan compared with 26.1 billion Yuan in the first quarter. Yiling Pharmaceutical made the list with a market value of 37.5 billion Yuan, an increase of 150% in market value, moving up 583 places in the ranking.

Cardiovascular Product Sales Growing Against the Market Trend

In addition to the Lianhua Qingwen boom, sales revenue of cardiovascular products of Yiling Pharmaceutical has also been climbing against the market trend in the second quarter, which is also worthy of attention. Although the coronavirus outbreak was already tamed during the second quarter, yet the number of outpatient visits to most hospitals hadn't return to the previous years' level in the same period of time due to precautionary measures concerning COVID-19 and other factors. According to the "Investigation of the Operating State of Chinese Social Medical Institutions during the Outbreak of COVID-19 in 2020", jointly conducted by the Medical Management Research Center of "Medical Industry Observe" and the Institute of Social Medical Institutions of Shanghai Jiaotong University, only 6.6% of the sample hospitals had a number of outpatient visits till May comparable or higher than that in the same period last year; 36.9% of the hospitals resumed more than 80% of the outpatient visits of that in the same period last year; and more than 30% of the hospitals failed to recover even 50% of the figure in the same period last year.

The decline in outpatient visits led directly to a decrease in sales revenue for the majority of drugs compared to the same period last year, while the sales of Yiling Pharmaceutical's cardio-cerebrovascular products in the second quarter went up, the driving force of which can mainly be attributed to the awarding of the First Prize of National Science and Technology Progress. In January this year, the research project "Establishment of a Theoretical Framework of Meridians in TCM and Guidance for Prevention and Treatment of Microangiopathy" with Research Institute of Yiling Pharmaceutical in Hebei Province, a subsidiary of Yiling Pharmaceutical, as the major research institution won the First Prize of National Science and Technology Progress in 2019, which was the only project in medical and health sector awarded First Prize in that year.

Publicly available information reveals that the project conducted numerous clinical trials adopting the internationally recognized evidence-based research method and successfully resolved a huge international medical challenge: With Tongxinluo Capsule the world medical obstacle of no-reflow in patients with acute myocardial infarction was overcome; Shensong Yangxin Capsule provides a new drug for the treatment of heart failure (CHF) patients with premature ventricular contraction (PVC), filling the gap of drug treatment of sinus bradycardia with ventricular premature beats to achieve a coordinated rhythm; Qi Li Qiang Xin Capsule significantly improved the effect of clinical treatment of chronic heart failure. Having obtained this award has notably increased the market influence of the company's cardio-cerebrovascular products, thereby driving the sales of related products in the second quarter.

In addition, the positive impact of the First Prize of the National Science and Technology Progress Award on the company's cardio-cerebrovascular products continues. The recently published "Chinese Expert Consensus 2020 for Ventricular Arrhythmia", jointly compiled by the Electrophysiology and Pacing Branch of Chinese Medical Association and the Professional Committee on Rhythmology of Chinese Medical Doctor Association, recommends the use of Shensong Yangxin Capsules in treating non-organic premature ventricular contractions (PVCs), organic ventricular premature beats, heart failure with ventricular premature beats, sinus bradycardia with ventricular premature beats, and the level of evidence was upgraded to Level A, which helped to further open up the market for Shensong Yangxin Capsules.

In the Post-Epidemic Period, the Sales of Lianhua Qingwen also Increased Substantially

During the pandemic outbreak of coronavirus disease, the "Three Drugs and Three Prescriptions" including Lianhua Qingwen were widely embraced by the public and glinted brightly on the market. A few days ago, a white paper titled "Fighting COVID-19: China in Action." released by the State Council clearly points out that Lianhua Qingwen and other traditional Chinese medicine show definite clinical effects. Lianhua Qingwen is listed as a recommended drug to treat COVID-19 and an approval was given adding COVID-19 to its indications. A clinical study regarding effects of Lianhua Qingwen in treating COVID-19 conducted by academicians such as Zhong Nanshan, Li Lanjuan and Zhang Boli and 23 hospitals confirms that the drug is safe and effective, which was published in an authoritative international journal. In the first quarter of this year, Lianhua Qingwen achieved an operating revenue of 1.542 billion Yuan with an almost doubled year-on-year increase.

According to the performance forecast for the first half of the year, sales volume of Lianhua Qingwen showed a significant year-on-year growth, even when the domestic coronavirus outbreak was under control in the second quarter. A stock analyst, who wishes to remain anonymous, said that the strong growth of Lianhua Qingwen in the second quarter had, to a certain extent, revealed that this drug had become a commonly used drug in China. With Lianhua Qingwen's increasing popularity in the domestic market, its market share in traditional indications such as influenza and cold is expected to expand, which will lead to stronger growth in sales. In the meantime, Lianhua Qingwen was approved in 9 countries and regions including Brazil, Romania, Ecuador, Singapore, etc., as well as Hong Kong, S.A.R., China and Macau, S.A.R., China in China, opening up overseas markets with a breakthrough.

While achieving good performance in revenue, the investment value of Yiling Pharmaceutical has also been widely recognized by many institutions. Tianfeng Securities believes that as various sectors of the company such as Chinese medicine, chemical medicine, healthcare, etc., continue to develop and the process of globalization is steadily pushed forward, they are optimistic about the future of the company. Dongxing Securities has indicated in their latest research report that the increase in the popularity of Lianhua Qingwen during the coronavirus outbreak and the expansion of indications could help to further open up rooms for more sales volume. Support from Evidence-based medicine and expansion to grassroots markets could also promote steady growths of other core products, hence a rating of "recommended" is granted.