23 first-half homing profit + 39.9% to 580 million yuan: due to the low base in the first half of 22, the company's revenue in the first half of 23 increased by 57.4% year-on-year to 9.3 billion yuan, and gross profit margin increased by 1.2 percentage points to 51.1%. In order to strengthen the promotion of national and provincial standard products of traditional Chinese medicine formula granules, the company's sales expenses were + 85.6% to 3.19 billion yuan compared with the same period last year, and the sales rate increased by 5.2% to 34.3% compared with the same period last year. Administrative and R & D expenses were + 15.7% and-1.2% to 470 million and 310 million yuan respectively compared with the same period last year, while management and R & D rates fell 1.8 and 2 percentage points to 5.0% and 3.4% respectively. The company's profit was + 46.4% year-on-year to 620 million yuan, profit margin decreased by 0.5% to 6.6%, and profit attributable to shareholders + 39.9% to 580 million yuan. The company has 3.98 billion in cash, 6.98 billion yuan in bank loans and bills, and 3 billion yuan in net debt.

Product structure: (1) due to the low base in the same period last year, the company's income from traditional Chinese medicine formula particles increased by 6.3% to 53.0%, thanks to the rebound in sales of formula particles and scale effects. its gross profit margin increased by 2.5% year-on-year to 64.1%. (2) during the reporting period, there were more than 1000 new level 2 and above medical institutions in proprietary Chinese medicine business, accounting for 21.9% of the company's revenue. The revenue of proprietary Chinese medicine was + 15.2% to 2.03 billion yuan compared with the same period last year, and the gross profit margin increased slightly by 1.1% to 59.3%. (3) thanks to the company's expansion of medical terminal coverage, active layout of traceability system and intelligent frying and distribution service, the business income of traditional Chinese medicine, which accounts for 14.0% of the income, is + 55.1% to 1.31 billion, and the gross profit margin is + 2.9% to 21.9%.

(4) thanks to the improvement of the supply capacity of authentic medicinal materials and the development of new customers, the production and operation income of Chinese herbal medicines, which accounts for 9.5% of the company's income, is + 104.2% to 880 million yuan compared with the same period last year, and the gross profit margin is + 1.6% to 8.0% compared with the same period last year.

(5) the others are the large health industry of traditional Chinese medicine and the National Medical Center, which account for 1.0% and 0.6% of the income. As of 23 years, the company has 218 medicinal plant bases, involving 87 varieties of medicinal materials, of which 74 are traceability system varieties.

Collection and collection of prepared slices and granules of traditional Chinese medicine formula: Shandong Province leads the purchasing alliance of 15 provinces to carry out the joint mining of prepared slices of traditional Chinese medicine, involving 42 products of 21 varieties, with a collection scale of 740 million yuan. In terms of rule setting, quotation factor 1 accounts for only 15%. Its purpose is "quality assurance, upgrading, and stable supply". The company selects a number of rules among its subsidiaries to further expand its scale and sales. In September 23, Shandong established a purchasing alliance of traditional Chinese medicine formula granules with the participation of 15 provinces, carried out collection of 200 national standard varieties of traditional Chinese medicine formula granules, and organized medical institutions to complete the work of filling in the demand. The procurement document was released on September 6. This rule requires that the price can be reduced by 40% on the basis of the highest effective quotation, and the collection results are expected to be announced in the fourth quarter. It is expected that the price reduction of formula particles will increase the market penetration of this category, and the company is expected to be able to exchange price for volume, and ensure revenue and profit through large-scale production and reduction of intermediate costs.

Adjust the target price to HK $4.30 and maintain the buy rating: the company hopes to build a traditional Chinese medicine group with a whole industry chain. Due to the gap between the collection of formula particles and expectations in terms of time and rules, we reduce the company's revenue growth expectations and long-term market space. Based on DCF, we estimate that the company is worth a target price of HK $4.30 (discount rate of 10%, sustainable growth rate of 3%), maintaining the buy rating, with 22.1% room to rise from the current price, corresponding to 18.5 times PE in 2023.