Tofulong announced its 2023 annual report. In the first half of the year, we achieved operating income of 2,951 million yuan (up 21.58% year on year); net profit of 426 million yuan (up 5.82% year on year); and net profit after deducting net income of 393 million yuan (up 5.72% year on year). By quarter: 2023 Q2 achieved operating income of 1,528 billion yuan (up 28.43% year on year); realized net profit of 195 million yuan (2.01% year on year); realized net profit of 167 million yuan after deducting non-return home net profit of 167 million yuan (down 3.56% year on year).

Opinion: Revenue side growth was in line with expectations. Gross margin declined due to changes in product structure+a decrease in the share of overseas revenue, etc., and the cost ratio stabilized during the period. Domestic pharmaceutical equipment leaders have determined their strategies and are forging ahead.

2023Q2 gross profit margin of 39.40% (down 4.74 pct from the previous year), from “production line” and “region”

The dimensional analysis is as follows:

From a product line perspective, gross margin fluctuations in “single injection machines and systems” and “bioengineering stand-alone machines and systems” have a large impact on the overall profit growth rate. 2023 H1 Revenue Split by Product Line: 1) Formulation Division:

Revenue was 1,581 billion yuan (up 26.63% year on year), and gross profit margin was 41.68% (down 4.12 pct year on year).

Among them, stand-alone injectable machines and systems achieved revenue of 1,399 billion yuan (up 22.23% year on year), accounting for 44.36% of total revenue, and a gross profit margin of 40.43% (down 5.79pct from the previous year). We speculate that the main reasons for the decline in gross margin in this sector are: (1) changes in product structure due to a sharp decline in demand for anti-epidemic related products; (2) a decrease in the share of overseas products with high gross margin. 2) Bioprocess Division: Revenue of 800 million yuan (up 7.18% year on year), gross profit margin of 40.26% (down 4.66 pct year on year). Among them, bioengineering stand-alone and system revenue was 500 million yuan (up 2.58% year on year), accounting for 16.95% of total revenue, and gross profit margin of 37.28% (down 2.62 pct year on year).

From a regional perspective, both the amount and share of overseas revenue have declined, while overseas gross margin is higher than domestic, so the overall profit margin level has been lowered compared to 2022 H1. 2023H1:1) Overseas: Revenue of 581 million yuan (down 6.93% year on year), accounting for 19.70% (down 6.04 pct), gross profit margin of 50.51% (up 0.39 pct year on year); 2) Domestic: revenue of 2,369 million yuan (up 31.46% year on year), accounting for 80.30%, gross profit margin of 36.11% (down 3.31 pct from year on year).

The fee rate remained stable during the period. 2023Q2 sales expenses rate 5.55% (up 0.54 pct year on year); management expenses rate 8.71% (down 0.45 pct year on year); R&D expense rate 5.55% (down 0.15 pct year on year).

Profit forecast and investment suggestions: The company is expected to achieve net profit of 952 million yuan, 1,122 million yuan, and 1,336 million yuan in 2023-2025, with year-on-year increases of 12.4%, 17.9%, and 19.0%, respectively. The PE corresponding to the current stock price is 15x, 13x, and 11x, respectively. Maintain a “buy” rating.

Risk warning: New orders fall short of expected risks; overseas business expansion falls short of expected risks, etc.