The company deeply ploughs the field of medicine and animal health products, and is a pharmaceutical manufacturing company facing the global market, multi-variety and self-production capacity of a variety of key intermediates. Benefiting from the continuous expansion of the pharmaceutical manufacturing industry and the animal protection industry, the company continues to introduce new products to the market and continue to enrich the product matrix through horizontal replication and vertical expansion of the industry. Although the short-term performance of the company is under pressure by the decline in the prices of some products, considering that the market share of many of the company's products is among the best, with the orderly release of investment capacity and the subsequent planning and layout of new production capacity, we believe that the company has strong certainty to maintain rapid growth in the medium and long term. To sum up, we value the company 17 times PE in 2024, corresponding to the target price of 24 yuan, and maintain a "buy" rating.

Affected by the decline in the prices of some products, the company's short-term performance is under pressure. In the first three quarters of 2023, the company's operating income was 4.053 billion yuan, down 1.46% from the same period last year; the net profit was 489 million yuan, down 32.17% from the same period last year; and the non-return net profit was 483 million yuan, down 31.75% from the same period last year. Of this total, the company's 23Q3 operating income was 1.244 billion yuan, down 11.78% from the same period last year; the return net profit was 132 million yuan, down 41.78% from the same period last year; and the non-return net profit was 126 million yuan, down 42.75% from the same period last year. The company judged that the decline in 23Q3 quarterly results compared with the same period was mainly due to a significant decline in product prices compared with the same period last year, resulting in a decrease in product profit margin and a decline in net profit. In terms of profitability, the company's gross profit margin in the first three quarters of 2023 was 24.65%, down 3.73pcts from the same period last year. The net interest rate was 12.03%, down 5.51% from the same period last year. During the reporting period, the company's sales expense rate, management expense rate, financial expense rate and R & D expense rate were 1.33%, 5.66%, 4.02%, 1.11%, respectively, with changes + 0.38/+0.57/+0.74/+0.53pct (cumulative change + 2.22pcts). But on the whole, although the company's short-term performance is under pressure, we believe that the company's product shipments still maintain an increasing trend, and the relative market share of the industry has been further consolidated and improved.

Livestock and poultry market prices are expected to hit bottom, profitability is expected to gradually improve. From a business point of view, we judge that the company's pharmaceutical sector remained sound in the first three quarters, while the veterinary drug sector is under pressure-we think it is mainly due to the decline in the prices of veterinary drug-related varieties florfenicol and doxycycline caused by the relatively low prices in the livestock and poultry market (according to data from the China Veterinary Drug Feed Trading Center). The prices of florfenicol on January 1, March 31, June 30 and September 30 in 2023 are 418,369,305 and 269 yuan / kg, respectively, while those in 2022 are 565 yuan / kg, 442 yuan / kg, 462 yuan / kg and 463 yuan / kg, respectively. The prices of doxycycline on January 1st, March 31, June 30 and September 30 in 23 years were 514,398 yuan / kg, 444 yuan / kg and 424 yuan / kg, respectively, while those in 2022 were 637 yuan / kg, 526 yuan / kg, 470 yuan / kg and 520 yuan / kg, respectively. However, we believe that the overall livestock and poultry market price has entered the bottom position (we judge that the current price of florfenicol is near the cost line). With the subsequent backward production capacity (non-large-scale, modern manufacturing platform advantage of the same industry) is expected to clear and the company's capacity is gradually climbing, we are optimistic that the company's profitability will improve in the future.

The incidence of mycoplasma pneumonia has increased recently, and the company is a major supplier of related therapeutic drugs. Mycoplasma pneumoniae pneumonia is the most important community-acquired pneumonia in children aged 5 and above in China. According to People's Daily and Health report, the number of children with mycoplasma pneumoniae infection admitted to pediatrics in Beijing, Chongqing, Shanghai, Henan, Hebei and other hospitals has increased significantly since September. Macrolide antibiotics such as roxithromycin and azithromycin are currently the first choice for the treatment of mycoplasma pneumoniae infection, in addition, new tetracycline antibiotics and quinolones can be used as alternative drugs. Guobang Pharmaceutical is a major global supplier of macrolides and quinolones. Since the end of 2000, the company began to produce azithromycin, roxithromycin, clarithromycin and other APIs. After years of development, the company has an increasing influence in the antibiotic API market. According to the company's prospectus, from 2017 to 2019, the company's exports of azithromycin, clarithromycin and (hydrochloric acid, lactic acid) ciprofloxacin ranked first in China. We believe that if the number of patients with mycoplasma pneumonia continues to increase in the future, the increased demand for related therapeutic drugs is expected to lead to a rise in the price of upstream raw materials, and the company is expected to benefit significantly.

Risk factors: risk of substantial fluctuations in raw material supply and prices; risk of increased trade frictions; risk of natural disasters and force majeure; risk of large fluctuations in foreign exchange rate; environmental protection-related risks; product quality control wind insurance.

Profit forecast, valuation and rating: taking into account the decline in the price of the company's veterinary drugs florfenicol, doxycycline and pharmaceutical intermediates in the first three quarters of 2023, we adjusted the company's annual EPS forecast for 2023-24-25 to 1.16pm 1.45pm 1.85 yuan (the original forecast was 1.37pm 1.62pm 1.95 yuan), and the current price corresponds to 16x/13x/10x. Refer to comparable companies in 2024 (Proco Pharmaceutical Co., Ltd., China Animal Husbandry Co., Ltd., Xinhecheng Wind consensus expectation) average 14 times PE valuation, considering that the company's performance in 2023 is under pressure by the decline in product prices, but we believe that the overall livestock and poultry market price has entered the bottom position. With the subsequent backward production capacity (non-large-scale, modern manufacturing platform advantage of the same industry manufacturers) is expected to clear and the company's market share increases, it is expected that the overall livestock and poultry market prices will begin to recover after 2024. We believe that the company's performance is expected to accelerate in 2024x25, so we value the company at 17 times PE in 2024 and maintain a "buy" rating corresponding to the target price of $24.