[investment points]
With the intensification of the aging of the population, the demand for drugs for bone and joint diseases continues to rise; the awareness of national fitness is enhanced, and sports injuries expand the market for orthopedic painkillers; long-term bad living and working habits, young people may become a new group of orthopedic painkillers. Osteoarthritis, lumbar pain and other chronic diseases need long-term medication, and patients prefer proprietary Chinese medicines with less side effects and easy to carry, such as plasters.
After the decline affected by the epidemic in 2020, the market sales income of proprietary Chinese medicine patches in China's urban entity drugstores returned to the right track in 2021, an increase of 5.10% over the same period last year.
The company continues to focus on core products, Tongluo Qutong Ointment, Zhuanggu Musk pain Ointment, Musk Zhuanggu Ointment and other six products are listed in the city entity drugstore plaster market TOP20 list. Tongluo Qutong ointment is a double-span variety, with sales of 55% at the end of OTC and 45% at clinical hospitals in 2021, with an annual growth rate of 10% at both ends. Peiyuan Tongnao capsule, Danlu Tongdu tablets and other exclusive varieties returned to high growth after the epidemic. The combination of "Huoxue Xiaotong Tincture + Tongluo Qutong Ointment" promotes the formation of customer use habits.
With the improvement of living standards and affordability of residents and the better development of proprietary Chinese medicine OTC, the price of traditional Chinese medicine products is expected to rise gradually. Tongluo Qutong ointment has high brand awareness, good product and good curative effect. Tongluo Qutong ointment has the potential to further raise prices and contribute to the increment of performance income for the company. The price of ordinary plaster in the company has been maintained at a low level for a long time. With the increase of production cost and the improvement of sales channels, ordinary plaster has gradually entered the cycle of price increase.
Product upgrade activates product growth momentum. "Tongluo Qutong ointment + Huoxue Xiaotong tincture" combination sales, Huoxue Xiaotong tincture is expected to double its long-term income. The upgrading of high-quality products, experience and convenience will greatly promote the growth of product sales.
The two marketing reforms have achieved remarkable results, continuously improve the company's profitability, and become more and more confident in the power movement market.
[investment advice]
We estimate that the operating income, net profit and EPS in 2024 will be RMB 31.11, 3531, 3.969 billion, 4.83, 573, and 1.20 respectively. We selected Qizheng Tibetan Medicine, Jiudan Pharmaceutical, and China Resources Sanjiu, the leader of OTC industry, as comparable companies with similar product structure. The average valuation of comparable companies in 2023 was 17 times. We believe that with the expansion of the traditional Chinese medicine market for orthopedic painkillers, high-quality enterprises as the leader of the paste will enjoy the dividend of increasing market share. The company carries forward the spirit of struggle in the old revolutionary base areas, the smooth handover of new and old management, focuses on the development of core brands, and constantly promotes product upgrading and iteration to meet the individual needs of the majority of pharmaceutical consumers. at the same time, the company's main products have also entered the price increase cycle. We value the company 17 times in 2023, corresponding to a 12-month target price of 17.2 yuan, which is upgraded to a "buy" rating compared with 39% of the current room.
[risk Tip]
Changes in traditional Chinese Medicine Industry
Policy change of traditional Chinese Medicine Industry
Mistakes in marketing strategy
New product development and marketization
The growth of the main products is not as expected.
