occurrences

The company discloses its 2022 annual report. The company achieved operating income of 1,088 million yuan in 2022, +12.15% year on year; net profit of Guimu was 116 million yuan, +15.40% year on year; after deducting net profit of non-return mother was 106 million yuan, +12.71% year on year.

Incident reviews

Short-term performance is under pressure under the influence of the epidemic. Financial indicators show resilience Looking at a single quarter, the company's 2022 Q4 revenue was 218 million yuan, -2.73% year on year; net profit of the mother was 11 million yuan, -3.92% year on year; net profit after deducting non-return to the mother was 0.04 million yuan, -45.75% year on year.

The company's overall gross margin in 2022 was 77.26%, -1.99 percentage points year on year; the cost rate for the period was 64.96%, -1.39 percentage points year on year; of which the sales expenses rate (including R&D expenses) was 48.91%, +0.26 percentage points year on year; the management expenses rate (including R&D expenses) 15.02%, -0.93 percentage points year on year; financial expense ratio was 1.03%, -0.72 percentage points year on year; net operating cash flow was 76 million yuan, -39.00% year on year.

All sectors are growing steadily, and production line construction ensures production capacity demand

In 2022, the company's revenue for gynaecological products was 769 million yuan, up 11.95% year on year; revenue from urinary system products was 220 million yuan, up 9.95% year on year; revenue from cleansing and detoxification products was 80,1644 million yuan, up 17.09% year on year; revenue from other products was 169.42 million yuan.

The two advanced domestic and southwest leading modern intelligent production lines currently under construction will also be completed in June 2023. Once all of the company's production lines are upgraded and the new production lines are completed and put into operation, it will be possible to guarantee the system capacity requirements of the entire industry chain with an estimated output value of 4 billion in the next 5 years. It will also generate great internal benefits in terms of cost control and productivity improvement.

Innovative traditional Chinese medicine has been fruitful. The company attaches importance to the future development layout of the traditional Chinese medicine industry, and continues to develop and reserve products such as new traditional Chinese medicine, traditional Chinese medicine formula granules, and classic famous recipes in accordance with the R&D requirements of “production generation, reserve generation, and development generation”. By the end of 2022, the company had 3 new traditional Chinese medicine products and completed phase III clinical trials; it had 445 standard varieties of traditional Chinese medicine formula granules; it had 445 standard varieties of traditional Chinese medicine formula granules and completed 179 national standard filings. The development of classic prescription products has also begun to bear fruit. Currently, research on 8 classic recipes is being promoted.

Using clinical efficacy as a starting point, the company continues to promote high-quality product promotion strategies. The company has a sales team of more than 400 people and more than 100 commercial promotion companies, has established multiple regional offices in 30 provinces, autonomous regions and municipalities directly under the Central Government, and has carried out academic promotion activities. Prescription drug products cover more than 12,800 hospitals at the county (district) level and above, including more than 1,700 tertiary hospitals, which have established long-term stable business relationships with more than 1,500 medical commercial units in China. The company insists on “clinical efficacy” as the basic starting point to drive the OTC channel market, the company's main varieties In terms of clinical drug use, there is already a market of a corresponding scale. The annual sales scale of leading varieties has reached 200 to 500 million yuan. The “out-of-hospital” retail market sales of OTC channels are expanded on the basis of clinical efficacy, and it has a rich clinical market base and “bonding strength” with the patient population. At the beginning of 2022, pilot promotion programs for traditional Chinese medicine commercial brands were launched in nine major cities in four provinces. The “Heyan” brand of female reproductive health products, which mainly focus on Kuntai capsules, received good market recognition in the out-of-hospital retail market, and drug sales through OTC channels improved markedly.

Investment advice

We anticipate that the company's revenue from 2023 to 2025 was 14.2/174/2.07 billion yuan respectively, up 30.3%/22.6%/19.4%, respectively, and the net profit of the mother was 15/ 19/ 220 million yuan respectively, up 30.8%/22.9%/19.6% year-on-year, respectively. The corresponding valuation was 21X/17X/14X. Considering the company's stable product structure, good competitive pattern, rich R&D pipelines, and continuous penetration of OTC channels, the “buy” investment rating is maintained.

Risk warning

Industry policy risks; product development risks; drug sales uncertainty, etc.