Event: The company publishes its 2022 annual report and 2023-1 quarterly report. In 2022, the company achieved operating income of 1,399 million yuan (+35.31%), net profit of 177 million yuan (+84.50%), and net profit of 155 million yuan (+90.95%) after deducting non-return to the mother. The company achieved operating income of 350 million yuan (+11.13%) in the first quarter of 2023, and net profit of the mother was 60.25 million yuan (+54.82%).

It is expected that 12D will continue to grow steadily, and second-tier varieties will be released rapidly; the product lineup will continue to be rich.

The company's service revenue in 2022 was $981 million (+35.46%), mainly due to the amount of injectable multivitamin (12) released; benefiting from the recovery in in-hospital care, we believe injectable multivitamin (12) is still expected to grow steadily above a high base. In 2022, multi-micronutrient injections (40ML) achieved sales revenue of 182 million yuan (+232.17%). At present, 26 provincial administrative regions have won bids/connected to the Internet, covering more than 200 hospitals. We believe this variety is still expected to continue to grow rapidly in 2023. In 2022, pediatric multivitamin injections (13) achieved operating income of 45 million yuan. This variety has been negotiated and included in medical insurance. Currently, 28 provincial administrative regions have won bids/networks, covering more than 120 hospitals. It is expected that 2023 will continue to grow rapidly. Currently, the company has more than 30 research projects. In 2022, it has obtained registration approvals for three products: pediatric compound amino acid injection (19AA-I), injectable multivitamin (13) (10/3), and compound amino acid injection (20AA). It is expected that the approval conclusions for 3 products will be obtained in 2023.

Revenue growth is expected to return to normal, and profit margins are expected to increase. The company's revenue growth rate declined in the first quarter of 2023, mainly due to the impact of the epidemic on the use of parenteral nutritional drugs. We believe that as the diagnosis and treatment order returns to normal, the company's overall revenue is expected to maintain a relatively rapid growth throughout 2023.

The main reason for the large year-on-year increase in the company's net profit in the first quarter of 2023 was the increase in core product sales, the increase in operating income, and the reduction in cost amortization as the ban on equity incentives was partially lifted. We believe that the benefits were: (1) the increase in the share of revenue from high-margin varieties; (2) the reduction in incentive expenses, and the company's profit margin is expected to increase.

Profit forecasts and valuations. We expect the company's revenue to be 18.45, 23.27 and 2,831 billion yuan respectively in 2023-2025, with year-on-year growth rates of 31.9%, 26.2% and 21.7% respectively; the net profit of the mother is 2.72, 3.65 and 479 million yuan respectively, with year-on-year growth rates of 53.6%, 34.3% and 31.2% respectively. Based on the closing price of May 9, the corresponding PE will be 22.2, 16.5 and 12.6 times respectively, maintaining the “buy” rating.

Risk warning: The epidemic has repeatedly affected product sales; core varieties have been included in national/local collection, and the price reduction has exceeded expectations.