Incident: The company released the first quarter report of 2023. The revenue for Q1 2023 was 91 million yuan, an increase of 38.2% over the previous year, achieving net profit of 300 million yuan to the mother, an increase of 73.6% over the previous year, and achieved net profit of 290 million yuan after deducting non-recurring profit and loss, an increase of 60.3% over the previous year.

The performance is in line with expectations, and the new active hormone is growing rapidly. Both the 2023Q1 company's revenue and net profit have grown rapidly. The increase in revenue is mainly due to the increase in sales of the company's core product, the new active ingredient. The profit increase is mainly due to the year-on-year decline in the company's R&D expenses and financial expenses, and the combined impact of the year-on-year increase in investment income and fair value change income. Net cash flow from the company's operating activities increased 58.3% year-on-year. In the first quarter of 2023, the company's net profit and net profit after non-return to the parent reached 300 million yuan and 290 million yuan respectively, up 130 million yuan and 110 million yuan over the same period last year, with year-on-year increases of 73.6% and 60.3%, respectively. The company's gross margin and net interest rate in the first quarter of 2023 were 95.6% and 33.7%, respectively, up year-on-year.

There is potential space for 20-30 million new actives in the market, and it is hoped that new activities will continue to exceed expectations throughout the year. According to “Heartbreak and Heartfailure Among Urban Disorders in China” data released by Hua Wang and others in 2021, the number of heart failure patients aged 25 and over in China in 2017 was about 12.1 million, and the hospitalization rate of heart failure patients was about 28%. According to the proportion of hospitalizations, the number of hospitalizations per year is estimated to be 6.78 million. Considering that the proportion of people aged 65 and over in China increased by about 30% from 2017 to 2022, assuming that the incidence rate and number of re-hospitalizations did not change, the number of hospitalizations in '22 should be around 9 million. Based on the 2017 data calculation, assuming that among hospitalized patients, the number of patients with acute attacks or new cases of acute illness accounted for 85%, and that patients with humidity and heat accounted for about 90%. Based on the average calculation of 4-5 doses of medication used per inpatient, the estimated demand for new active compounds is 2076-25.95 million. Based on estimates of 6.16 million units of new active compounds sold in '22, the penetration rate is only 24%-30%. According to the company's operating guidelines, the target revenue for 23 was 3.5 billion yuan, an increase of 37.3% over the previous year. The company's sales of new compounds increased significantly in the first quarter. We are optimistic about the company's annual performance.

Profit forecasting and valuation. Considering the rapid release of the company's new activity in the first quarter of 2023, we maintain our previous forecast of the high growth rate of the company's revenue and profit. We expect the company's net profit to the mother in 2023-2025 to be 10.0/131/1.70 billion yuan respectively, corresponding to a growth rate of 170.0%/31.0%/29.8%, corresponding to the current market capitalization of PE 15/11/9 times, maintaining the company's “buy” rating.

Risk warning: the risk of increased competition in the market; the risk that the price of health insurance negotiations falls short of expectations; the risk that sales fall short of expectations.