In 2022, Guimu's net profit rose 14.91% year on year, exceeding our expectations, Tongrentang Technology announced 2022 results: revenue rose 10.95% year on year to 5.992 billion yuan, in line with our expectations; Guimu's net profit was 583 million yuan (corresponding to earnings of 0.46 yuan per share), up 14.91% year on year, exceeding our expectations, mainly due to the resumption of growth in core products in the fourth quarter.
Development trends
In 2022, the company's core products basically resumed growth. The company's revenue and net profit for the fourth quarter of 2022 alone increased 26.3% and 68.8% year-on-year. In 2022, sales of the Jinqiu Kidney Gas Pill series were +1.71% year on year, Sihuang Pill series +4.07% year on year, Ejiao series +10.38% year on year, cold heat treatment pellet series +11.00% year on year, the live drink oral liquid series increased +17.17% year on year, the Liuwei Dihuang pill series fell slightly by 6.55% year on year, and the Oxalis detox series fell slightly by 0.63%. We believe the company is expected to further deepen its diversification strategy in the future.
In 2022, Tongrentang Sinopharm's revenue was 1.50 billion yuan, +15.8% year on year, and Guimu's net profit was 560 million yuan, +10.6% year on year. Tong Ren Tang's revenue was 557.48 million yuan, -16.3% year on year, and net profit was 614,000 yuan. Tongrentang No. 2 Traditional Chinese Medicine Hospital and South Sanhuan Middle Road Pharmacy earned 220 million yuan, +0.4% year on year, and net profit of 111.61 million yuan, +54.4% year on year.
The company's gross margin improved year over year in 2022. 1) In 2022, gross margin was +0.8 percentage points year over year to 43.3%; 2) net profit margin was +0.3 percentage points year over year to 9.7% year on year; 3) The cost of sales ratio was 15.1%, +1.4 percentage points year on year, management expenses rate was 8.1%, and -0.7 percentage points year on year.
Profit forecasting and valuation
Considering that the growth of the company's core products recovered more than expected, we raised the 2023 net profit forecast per share by 6.8% to 0.51 yuan, and introduced the 2024 net profit forecast of 0.57 yuan per share for the first time. The current stock price corresponds to the 2023/2024 price-earnings ratio of 10.5 times/9.1 times. We maintained our outperforming industry ratings and raised our target price by 5.0% to HK$7.95, corresponding to the price-earnings ratio of 13.1 times/11.4 times 2024/2024, with 24.8% upside from the current stock price.
risks
Demand has declined in Hong Kong and the Mainland, and sales management expenses have increased.