In 2021, the company's operating income increased by 32.2% over the same period last year to about 13.23 billion yuan (the same below), and the net profit of shareholders increased by 16.2% to 1.93 billion yuan. In the main business, the comprehensive business income of formula granules, proprietary medicine, prepared pieces of traditional Chinese medicine and the Health of traditional Chinese Medicine University increased by 32.2%, 13.8%, 14.6% and 36.3% respectively compared with the same period last year. The company has been very successful in selling traditional Chinese medicine formula granules in the second half of the year, and since November 2021, China has relaxed the requirements for medical institutions to sell formula granules, and the company's formula granule sales network has been further broadened. as a result, the revenue of formula particles in the second half of the year is about 1.5 times that of the first half of the year, leading the company to exceed expectations. As the gross profit margin of traditional Chinese medicine formula granules is significantly higher than that of other sectors, the rapid growth of formula granule income leads shareholders' net profit to exceed expectations.
Revenue is expected to grow steadily in the next three years.
We expect the company's revenue to maintain steady growth in the next three years. The 2021-24ECAGR of the main business of traditional Chinese medicine formula granules and proprietary Chinese medicine business income are 12.9% and 12.3% respectively, based on: 1) as an industry leader, the company will continue to benefit from the demand growth of traditional Chinese medicine formula granules: traditional Chinese medicine formula granules are safer and more in line with the theory of TCM "syndrome differentiation and treatment, plus or minus with syndrome". To be able to provide personalized treatment according to the needs of patients, it is expected that the demand for traditional Chinese medicine formula particles will continue to grow steadily. According to the data of China Pharmaceutical Industry Information Center, the company's share of the traditional Chinese medicine formula granule market in 2020 is as high as 52%. As an industry leader, it will continue to benefit from the growth of demand. 2) in the future, there will be an increase in the number of medical institutions that can sell traditional Chinese medicine formula granules, and the company's grass-roots sales network will be broadened: traditional Chinese medicine formula granules can only be used in hospitals at or above the second level. However, according to the notice on standardizing the clinical use of traditional Chinese medicine formula granules issued in November last year, the scope of medical institutions that can provide formula granules has been significantly expanded. As long as the medical institutions that can provide traditional Chinese medicine services after examination and approval or filing can use formula particles, these situations are conducive to the sales and promotion of the company's products in primary health care institutions. 3) at present, the epidemic situation of COVID-19 is repeated in China, and traditional Chinese medicine is very effective in COVID-19 's prevention and treatment of mild illness. the company's pneumonia granules were put into use in China in 2020 and are currently used in famous Chinese medicine clinics in Hong Kong. it is expected that it will continue to benefit from increased demand in the future. 4) in 2021, the gross profit margin of the company's proprietary Chinese medicine business increased by 3.8 percentage points compared with the same period last year, indicating that the sales of high-margin products are increasing.
Reiterate the "overweight" rating, with a target price of HK $5.05
Due to better-than-expected results in the second half of 2021, shareholders' net profit forecasts for 2022-23e were raised by 7.6 per cent and 3.6 per cent respectively. We reiterate our "overweight" rating and raise our target price from HK $4.35 to HK $5.05, corresponding to 9.0 times 2022E PER, to reflect the increase in earnings forecasts.
Risk hints: (1) COVID-19 repeatedly affects the operation; (2) the competition of traditional Chinese medicine formula granule plate may intensify.