Core viewpoints
On October 27, the company released a report for the third quarter of 2023. The operating income in the first three quarters was 197.508 billion yuan, an increase of 13.11% over the same period last year. The net profit was 3.797 billion yuan, down 21.13%. The net profit after deduction was 3.304 billion yuan, down 10.64% from the same period last year. The basic earnings per share was 1.03 yuan, which was basically in line with expectations. Looking forward to 23Q4, the impact of compliance sales in the hospital tends to be stable, the company's distribution sector is expected to achieve steady growth, the superimposed industrial sector is gradually stabilized and fee control continues to advance, and the company's Q4 operation is expected to improve month-on-month.
Event
The company released the third quarter report of 2023, and the results were in line with our expectations. On October 27, the company released the third quarter report of 2023, which showed that the operating income was 197.508 billion yuan, an increase of 13.11% over the same period last year, and the net profit was 3.797 billion yuan, down 21.13% from the same period last year. The net profit after deduction was 3.304 billion yuan, down 10.64% from the same period last year, and the earnings per share was 1.03 yuan.
Brief comment
The commercial sector is growing steadily, and the overall fee control effect is remarkable.
In the first three quarters of 2023, the company's revenue side grew by 13.11%, mainly due to the steady growth of the commercial sector. In the first three quarters, revenue grew 14.14% year-on-year to reach 176.708 billion yuan, while the industrial sector grew steadily. The net return profit decreased by 21.13% compared with the same period last year, and the non-return net profit decreased by 10.64% compared with the same period last year, the growth rate was lower than that of the income end, mainly due to: 1) the impairment of Kangxinuo affected the profit of about 468 million yuan, excluding this effect, the net profit of deducting non-return net profit increased by 2.11% year-on-year to 3.772 billion yuan. 2) in the first half of 2022, the relocation income of the subsidiary Qingchunbao formed a large non-recurrent profit and loss, resulting in a large base of return net profit. Excluding the relocation income and the one-time special profit and loss impact of CANSINOBIO's impairment, the company's net profit increased by 8.57% to 4.265 billion yuan in the first three quarters compared with the same period last year.
In the third quarter of 2023, the company's revenue increased by 3.20% to 64.916 billion yuan compared with the same period last year, mainly due to: 1) due to the impact of hospital compliance sales, the growth of revenue in the commercial sector slowed to 4.72%; 2) the price of large industrial varieties fell, and the income of the industrial sector fell by 9.53%. 23Q3, the company achieved a net profit of 1.187 billion yuan, an increase of 6.14% over the same period last year, and a non-return net profit of 1.105 billion yuan, an increase of 8.66% over the same period last year, mainly due to: 1) the growth of the scale of the commercial sector, leading to an increase in contribution profit margin; 2) the company continued to promote cost reduction and efficiency, and the sales expense rate decreased by 1.42% in the third quarter alone.
The R & D pipeline continues to be rich, and the growth of the industrial end is expected.
In the first three quarters of 2023, the company's pharmaceutical industry sales revenue reached 20.8 billion yuan, an increase of 5.09% over the same period last year, contributing profits of 1.813 billion yuan, an increase of 9.72% over the same period last year, and a year-on-year increase of 0.37 percentage points to 8.72%. In the first three quarters of 2023, the company continued to promote the development of large varieties of traditional Chinese medicine. The research on evidence-based medicine of six major varieties, including Yangxinshi tablet, Yuxuebi capsule, Guanxinning tablet, Babaodan, Weifuchun tablet and ginkgo ketone ester, was steadily advanced, driving the revenue of the traditional Chinese medicine plate to increase by 16.51% to 7.472 billion yuan compared with the same period last year. In addition, the company actively enriches its R & D pipelines. From January to September 2023, 3 new drug pipelines were added, 2 of which were innovative drugs. By the end of September, 3 of the company's new drug pipelines had submitted applications for pre NDA or listing, and 55 products had been approved for consistency evaluation. We believe that the company still has a large volume of sales of large varieties of traditional Chinese medicine, obvious advantages of chemical products in research, and rapid progress of some products, which is expected to usher in the harvest period next year and accelerate performance growth.
The business sector is growing steadily, and the innovation platform is accelerating growth.
In the first three quarters of 2023, the company's business sector revenue increased 14.14% year-on-year to 176.708 billion yuan, contributing profit of 2.626 billion yuan, an increase of 8.8% over the same period last year, and contributed profit margin decreased slightly, mainly due to changes in the company's category structure and a decrease in sales of some varieties with high gross profit margin. In the single quarter of 23Q3, the revenue of the company's commercial sector increased by 4.72% year-on-year to 58.815 billion yuan, contributing profit of 856 million yuan, an increase of 28.14% over the same period last year, and contributed profit margin increased by 0.27% over the same period last year, mainly due to the slight optimization of the company's expense side and the gradual emergence of scale effects. In addition, the company strives to create an innovative pharmaceutical service platform, providing pre-listing cooperation, import and export services, national circulation, innovation and value-added four areas of full supply chain one-stop management services. In the first three quarters of 2023, the company successfully introduced 21 imported general generation varieties in the innovative pharmaceutical sector, and sales increased by 21% compared with the same period last year. We believe that the company's business sector layout is perfect, full-chain one-stop management services have high competition barriers, which is expected to drive steady performance growth in the long term.
The impact of hospital compliance sales tends to be stable, the effect of fee control is gradually showing and looking forward to the fourth quarter, we believe that the impact of hospital compliance sales tends to stabilize, patients' drug demand is gradually released, and the company's in-hospital distribution business is expected to show a steady growth trend. In terms of the industrial sector, the company will continue to implement the development strategy of large varieties of traditional Chinese medicine and out-of-hospital development, and the business increment is expected to accelerate, but considering that some large varieties are affected by concentrated mining and price reduction, the overall income of the industrial sector may maintain steady growth. In addition, the company continues to optimize the layout of business, strengthen cost-side control, the effect of fee control may gradually appear. On the whole, the company is the domestic pharmaceutical industry and commercial leader, industrial and commercial coordinated development has advantages, and the company deducted non-return net profit base is relatively low in the fourth quarter, the profit end is expected to maintain steady growth.
The reduction of product price affects the gross profit margin, and the effect of fee control is obvious.
In the first three quarters of 2023, the company's comprehensive gross profit margin was 12.13%, down 0.86 percentage points from the same period last year, mainly due to the price reduction of some of the company's high-margin varieties. The rate of management expenses was 2.87%, down 0.03% from the same period last year, which remained basically stable; the rate of sales expenses was 5.30%, down 0.62% from the same period last year, and the effect of fee control was obvious; and the rate of financial expenses increased slightly by 0.01% to 0.58%. The net cash flow generated by operating activities was 2.302 billion yuan, compared with-159 million yuan in the same period last year, mainly due to the increase in sales scale; the turnover days of accounts receivable decreased 3.1 days compared with the same period last year, which remained basically stable; inventory turnover days were 54.07 days, up 4.79 days from the same period last year, mainly due to the low base last year The turnover days of accounts payable increased by 3.55 days compared with the same period last year to 75.63 days, which remained basically stable. The other indicators are basically normal.
Profit forecast and investment rating
We estimate that the company's operating income in 2023 will be 262.163 billion yuan, 293.578 billion yuan and 328.781 billion yuan respectively, up 13.0%, 12.0% and 12.0% respectively over the same period last year, and the net profit will be 4.742 billion yuan, 6.324 billion yuan and 6.911 billion yuan respectively, up-15.6%, 33.4% and 9.3% respectively over the same period last year. The equivalent EPS is 1.28,1.71 and 1.87 yuan per share, respectively, and the corresponding PE is 13.8x, 10.4x and 9.5x. Excluding the impact of CANSINOBIO's impairment in the first half of the year, the company is expected to achieve a net profit of 5.21 billion yuan in 2023, down 7.25% from the same period last year, mainly due to the large non-recurrent profit and loss caused by 22 years of land acquisition and storage. We believe that CANSINOBIO's impairment is only a shareholding company's behavior, and the high profit base formed by land acquisition and storage is also a temporary factor, which is not strongly related to the company's main business, and the company's main business continues to improve and maintain its buy rating.
Risk analysis.
1) the risk of drug price reduction: the normalization of the reform of medical insurance control fees and payment methods will lead to a further reduction in the prices of some drugs, which may have a greater impact on the company's income.
2) risk of new drug research and development: the period of innovative drug research and development project is long, the investment is large, and the related progress, approval result and time are uncertain to a certain extent. If the progress of new drug research and development is lower than expected or the research and development fails, it may have a negative impact on the company's long-term revenue growth. 3) intensified market competition: the main competitors or newcomers in the market may weaken the company's relative advantage and sustainable development ability, affect the company's market competitiveness, and then affect the company's long-term development.
4) the performance of the target of epitaxial M & A falls short of the expected value of goodwill: if the integration of the target of outsourcing is not as expected, it may lead to the impairment of goodwill, which in turn affects the performance of the company.
5) Policy risk: the pharmaceutical industry is a highly regulated industry, and if there are more stringent policies, it may adversely affect the operation of the company.