The company's performance increased steadily and profits accelerated. In 2021, the company achieved revenue of 2,694 million yuan, an increase of 15.52% over the previous year; net profit of 362 million yuan, +11.08% over the same period; net profit of non-return mothers was 354 million yuan, +18.46% year on year; and total assets of 3.793 billion yuan, an increase of 9.70% over the end of the previous year. By product: paste 1,624 million yuan (+14.64%), capsules 666 million yuan (+15.90%), tablets 148 million yuan (+36.59%), ointment 121 million yuan (-10.34%), others 131 million yuan (+40.04%). In the first quarter of 2022, the company achieved operating income of 682 million yuan, +15.73% year on year; the net profit of the mother was 131 million yuan, +35.41% year on year, with a significant increase in profit.

The company promoted product development in an orderly manner. In 2021, the company continued to promote the development of new products and accelerate the secondary development of marketed varieties such as Peiyuan Tongnao capsules; Ling Rui Biotech completed the registration study and application of mometasone furoic acid nasal spray, and converted the nonsteroidal anti-inflammatory analgesic topical cream biphenyl acetate gel to an over-the-counter drug; the company obtained registration documents and registration numbers for health food products such as penicillus monocytogenes powder and multivitamin mineral capsules.

Play the role of brand and channel driving engine. The company promotes the concept of “scientific drug use, healthy life”, so that more people pay attention to and care about cervical spine health, combines the company's products with sports consumption scenarios such as marathons and bicycle races, and uses new channels to achieve the accumulation and transformation of young customers. The company deepened cooperation with major customers and strategic chain customers, developed more than 7,800 new hospitals at all levels throughout the year. The sales revenue of Shenqi hypoglycemic capsules and Danlutong tablets exceeded 100 million yuan, and the market share of Peiyuan Tongnao capsules maintained steady growth.

Gross margin has declined, and the cost of sales ratio has improved markedly. In 2021, the company's gross sales margin was 74.27% and the net profit margin was 13.46%, compared to -2.64pct and -0.45pct respectively. The decline in gross margin was mainly due to adjustments in sales channels and product structures. In terms of expenses: The company's sales expenses were 1,301 million yuan (+10.09%), management expenses were 189 million yuan (+13.77%), and financial expenses were -10.33 million yuan. Expense rates were 48.29%, 7.01%, and -0.38% respectively, of which the sales expenses ratio was -2.39 pct year-on-year. R&D expenses during the period were 86.21 million yuan (-11.82%), and R&D investment accounted for 3.26% of revenue.

[Investment advice]

The company has more than 100 products in ten dosage forms, including rubber paste, tablets, patches, tinctures, capsules, ointments, etc., covering various departments such as orthopedics, pediatrics, dermatology, anesthesiology, cardiovascular, etc., and has built a multi-category product matrix with clear hierarchies, rich structures, and covering clinical and OTC terminals.

Currently, the company and its subsidiaries have 45 national medical insurance varieties, 24 national essential drug varieties, and 13 exclusive varieties, mainly covering orthopedics, cardiovascular, and anesthesiology. The core orthopedic product, Tongluo Pain Relief Cream, is the company's exclusive product, and the sales volume of the “Two Tigers” series products is in a leading position in the market.

The company has rich product lines and brand advantages, leading product production technology and high-quality product quality, and strong terminal management and channel coverage capabilities. We expect the company's revenue for 2022-2024 to be 31.41/36.40/4.200 billion yuan, respectively, net profit of 467/573/687 million yuan respectively, EPS is 0.82/1.01/1.21 yuan respectively, and the corresponding PE is 12/10/8 times respectively, giving it an “increase in holdings” rating.

[Risk Reminder]

Risk of changes in raw material prices;

The growth of the main varieties fell short of expectations;

Uncertainties in industry policies;

Product quality risks;