occurrences
On August 29, 2023, the company released its semi-annual report. In the first half of 2023, the company achieved operating income of 6.791 billion yuan, +21.99%; net profit of 1,606 billion yuan, +53.16% year-on-year; net profit of non-attributable net profit of 1,541 billion yuan, +46.67% year-on-year.
Incident reviews
Semi-annual performance is improving, and the profit side continues to grow at a high rate
Semi-annual performance is improving, and the profit side continues to grow at a high rate. At 2023H1, the company achieved operating income of 6.791 billion yuan, +21.99%; net profit of 1,606 million yuan, +53.16% of the same period; net profit of 1,541 billion yuan after deducting non-attributable net profit of 1,541 billion yuan, +46.67% year-on-year.
Revenue remained steady in the second quarter. In a single quarter, the company achieved operating income of 2,856 million yuan, +0.40% year on year; net profit of 404 million yuan, or -28.49% year on year; net profit after deducting non-return net profit of 363 million yuan, or 35.26% year on year.
The company's ability to control expenses continues to improve. 23H1's overall gross margin was 61.74%, -0.51 percentage points year on year; period expense ratio 26.9%, year on year -4 percentage points; of which, sales expense ratio was 22.45%, year on year -4.13 percentage points, management expense ratio 4.34%, +0.20 percentage points year on year, financial expense ratio 0.07%, -0.07 percentage points year on year; R&D expense ratio 5.93%, -0.79 percentage points year on year. Net operating cash flow was $681 million, or -52.52% YoY.
Core areas maintain leadership, and product clinical certification continues to be strengthened
The company focuses on laying out the R&D pipeline for the traditional Chinese medicine sector. Under the guidance of innovative network pathology theory, the company has developed a unique product layout focusing on six types of diseases with high incidence rates, such as cardiovascular disease, respiratory, endocrine, neurological, oncology, and urology. Among them, in the fields of cardiovascular and cerebrovascular and cold respiratory diseases, the company is already in a leading position in the industry.
Cardiovascular sector: Achieved revenue of 2,511 billion yuan, +10.44% year-on-year, accounting for 36.98% of total revenue. The three innovative patented traditional Chinese medicines, Tongxinluo Capsule, Shensong Yangxin Capsule, and Qiqi Qiangxin Capsule, cover the three most common indications of cardiovascular and cerebrovascular diseases: ischemic cardiovascular disease, arrhythmia, and heart failure. They are all included in the medication guidelines.
Anti-cold sector: Achieved revenue of 3,088 billion yuan, +20.95% year-on-year, accounting for 45.47% of total revenue. At the end of 2022, Lianhua Cough Relief Tablets were included in the “National Basic Medical Insurance, Work Injury Insurance, and Maternity Insurance Drug Catalogue” through medical insurance negotiations and renewal. Based on accurate clinical efficacy and scientific research evidence, Lianhua cough tablets have been recommended more than 30 times for national, provincial and municipal COVID-19 and influenza diagnosis and treatment plans.
In the field of diabetes: The company's Jinlida granules are the first patented new drug for the treatment of type 2 diabetes developed under the guidance of the Institute for the pathogenesis and treatment of thirst quenching (diabetes). In 2023, the company further promoted the combined use of Jinlida granules and metformin, and found that Jinlida can effectively improve patients' blood sugar compliance rate, and improve clinical symptoms such as thirst, fatigue, hunger, polyuria, dry mouth, night sweats, irritability, and constipation. The study may be independent of improving blood sugar. The study was published in “Frontiers in Frontiers in” “Endcrinology.”
Nervous system: Kidney Nourishing and Relieving Depression and Relieving Discomfort Capsules were approved for sale in '21, and in 2022 they were first included in the medical insurance catalogue as Class B drugs through national health insurance negotiations. Among them, Depression-relief capsules were included in the “Guidelines for Integrated Traditional Chinese and Western Medicine Diagnosis and Treatment for Depression” in 2023. They are suitable for patients with mild to moderate depression. The TCM dialectic is suitable for patients with depression, phlegm obstruction, depression, and internal disturbance. The product has excellent clinical effects.
In the field of oncology medication: The company's product, Yangzheng Dietary Capsule, is a new patented drug developed using clinical pathology theory to explore the rules of traditional Chinese medicine for oncology. It is a type B of national health insurance. It can be used in interventional treatment of primary liver cancer. It has remarkable curative effects in increasing toxicity, enhancing immunity, improving symptoms, and improving the quality of life. It has been included in the 2020 edition of the “Clinical Practice Guidelines for Oncology Psychological Clinical Practice Guidelines” and the 2021 “Clinical Practice Guidelines for Cancer-Related Fatigue in China”.
Anti-aging: The clinical study “Hachiko Kidney Supplement Capsule Anti-Aging Clinical Study” to explore the efficacy of Yazi Kidney Supplement capsules against aging (improving symptoms in people with deficient kidney muscle loss) was officially launched. Currently, research data has been unraveled. Furthermore, the “Guidelines for the Integrated Diagnosis and Treatment of Diabetes Combined with Osteoporosis” published by “World Medicine” magazine on June 8, 2023, listed Hachiko Kidney Supplement capsules as recommended drugs, recommended level 2b.
With innovative traditional Chinese medicine as the main focus, it actively lays out the two major segments of the chemical biotechnology and health industry. Currently, the company focuses on innovative traditional Chinese medicine, actively lays out the two major segments of the chemical medicine and health industry, and has built a medical and health industry pattern where patented traditional Chinese medicine, chemical biotechnology, and health industries develop collaboratively and promote each other.
Patented traditional Chinese medicine sector: The company has formed a core technological competitiveness that uses complex pathology theory to guide clinical treatment research and development of major clinical diseases, innovation drives the development of new patented drugs, and develops a series of patented traditional Chinese medicines with independent intellectual property rights around six key disease areas, forming a unique product layout advantage. Currently, the company has 13 patented new drugs, won 1 National Science and Technology Progress Award 1, National Science and Technology Progress Award 4, National Technological Invention Second Prize, 1 National Technological Invention Award, and more than 20 provincial and ministerial science and technology awards, and received 300+ invention patents for traditional Chinese medicine.
Chemical biotechnology sector: The company has formulated a chemical medicine development strategy that goes hand in hand with “transfer processing and entry - international and domestic registration of generic drugs - R&D, production and sales of new patented drugs”. In terms of the generic drug business, the company has obtained approval for 15 US ANDA products, which have all been listed in the US; for emerging markets, the company has submitted registration applications in more than 20 countries around the world and has obtained 6 registration certificates; 13 products have passed consistent evaluations in the Chinese market. In terms of the new drug business, the company's research and development of multiple chemical class I drugs is progressing smoothly. One of these projects has completed phase III clinical trials.
Health industry sector: The company takes full advantage of the “research-production-marketing” integrated operation model and collaborates in product industrialization. At present, the company has formed a series of products such as mental health, nourish the mind and mind, nourish anti-aging and enhance immunity, active anti-fatigue joint protection products, sleep aid and mood improvement, and Lianhua Breathing Health. Among them, products such as Bi'an, Lianhua Qingfei Tea, Lianhua Throat Clearing and Antibacterial Spray, and Lianhua Popping Ball have a broad consumer base.
Investment advice
We keep our profit forecast unchanged. We expect the company's revenue from 2023 to 2025 to be 125.9/148.4/17.2.9 billion yuan, respectively, up 0.4%/17.9%/16.5% year on year, respectively, and net profit of 24.0/27.6/3.15 billion yuan, respectively, up 1.7%/14.7%/14.1% year on year, and the corresponding valuation is 16X/14X/12X. Maintain a “buy” rating.
Risk warning
Risk of industry policy adjustments, risk of drug price reduction, risk of product development and post-marketing clinical research, risk of price fluctuations of major raw materials, etc.