Excluding fluctuations in investment income, the company is operating steadily and its performance is in line with expectations. The company achieved revenue of 2,045 million yuan for the full year of 2022, +15.49% over the same period last year, mainly due to steady growth in core products such as ointments and ointments, and rapid growth in pill products; net profit of 472 million yuan was achieved throughout the year, compared to -34.01%, mainly affected by fluctuations in Baiyang Pharmaceutical's stock price by the M&A fund that the company participated in the establishment of M&A funds. Profits fell sharply under equity accounting, and achieved net profit of 440 million yuan after deduction. +27.52% over the same period last year, achieved a rapid growth trend and continuous improvement in operating quality. The company achieved revenue of 296 million yuan in the first quarter of 2023, -27.39% year on year, and achieved net profit of 92.76 million yuan, +6.52% year on year. It was mainly affected by the decline in terminal demand and core product sales due to the epidemic in early 2023. With routine medical treatment and consumption recovery, it is expected to maintain steady growth throughout the year.

The company's products continue to implement the core strategy of “strengthening pain” and creating a “topical use+oral” product group pattern. The company currently has 141 drug approval numbers centered on 25 exclusive varieties such as pain relief paste and white vein ointment, including 60 OTC varieties and 3 national secret technology varieties, covering many Tibetan medicine specialty treatment fields such as orthopedics, neurology, dermatology, gynecology, pediatrics, pulmonology, cardiovascular medicine, etc., with remarkable product advantages. In 2022, the company's analgesic series of analgesic pastes, Qingpeng Ointment, White Vein Ointment, Ruyi Zhenbao tablets, discrete iron bars, etc., all maintained a growth trend; the Guotan variety of safflower ruyi pills achieved an increase of more than 30% in annual sales; the pediatric products Jiuwei Zuhuangsan and Pediatric Chaihuangsan were recommended drugs for use in Yunnan Province; the respiratory products Shiwei gentian flower capsules and granules also experienced rapid growth.

Strengthen the level of medical care, quickly sink channels, and ensure the sustainable development of the business. The company continues to promote and deepen its own refined management strategy, with “strengthening analgesia” as the core, carrying out a number of key projects in grade medicine and primary care, targeting key markets through segmented management, focusing on resources and key allocation, increasing the breadth and depth of coverage of level-level medical care and primary care to drive sales growth. In addition, the development of multiple retail channels and platforms has gone hand in hand, using effective platform tools to accurately leverage label users' purchases and increase the repurchase rate. Through refined management strategies, the company continuously deepens many advantages such as brands, products, marketing, R&D, etc., to ensure the sustainable development of the business.

Based on the company's 2022 annual report based on assumptions such as a slight adjustment of revenue and a reduction in gross margin, we forecast earnings per share for 2023-2025 to be 1.01/1.21/1.42 yuan respectively (the original 2023-24 forecast was 1.04/1.22 yuan). Referring to comparable company valuations, we estimated the company's 35X price-earnings ratio in 2023. The corresponding target price was 35.35 yuan, maintaining the increase in holdings rating.

Risk warning

Sales of paste fell short of expectations; impact of unnatural factors such as the pandemic and floods; new business expansion fell short of expectations; fluctuations in investment income caused uncertainty about future company earnings, etc.