3Q23 revenue fell 25% year over year

The company announced revenue from January to 3Q23, net profit attributable to mother and deducted non-net profit of $8.57, 17.6, and 1.64 billion yuan (+8%, +24%, +16% yoy). 3Q23 revenue, net profit attributable to mother, net profit deducted from non-net profit of 17.8, 150 million yuan, and 100 million yuan (-25%, -58%, -73% yoy). The decline in revenue was mainly due to the impact of rising raw materials, revenue structure, and cost investment. Considering the impact of Lianhua's inventory removal, we adjusted the profit forecast value to 2023-25 to the mother's net profit of RMB 18.9/22.5/2.65 billion yuan (previous value: RMB 26/30/3.46 billion yuan). Considering that the company is a leader in innovative traditional Chinese medicine research and development, the 2023 PE valuation was 25 times (Wind agreed to be 22x compared to the company's average value; considering that leading Chinese medicine innovators gave a premium), the target price was 28.32 yuan (previous value 29.51 yuan), maintaining a “buy” rating.

Respiratory products: 3Q enters the adjustment period

We estimate that Lianhua Qingfeng's revenue in the 1st to 3Q23 fell 15-20% year over year to ~3 billion yuan; 3Q23 Lianhua Qingfeng's revenue was ~ 300 million yuan (2Q23 to 1 billion yuan), mainly due to the impact of social inventories; we estimate 1-3Q Lianhua's cough revenue to reach 400 million yuan; we expect respiratory revenue to reach 3.5 to 4 billion yuan in 2023:1) As COVID-19 variants continue to change and spread, we expect social stocks to continue to digest; the high prevalence of influenza in winter is also expected to catalyze random demand; 2) Qingfeng is expected to catalyze random demand for COVID-19 treatment; 2) Qingfeng is expected to be used to treat random COVID-19 Blind and international multi-center studies have achieved positive results and have been submitted to the “Virology Journal”; a randomized double-blind trial for influenza in children has entered the paper writing stage, and clinical influenza prevention is expected to be initiated within the year; 3) Cough is a major form of national negotiations, respiratory illness, and sales support 2 to 3 billion yuan in long-term space.

Mind-brain products: 3Q steady growth, see JAMA for major academic results of Tongxinuo. We estimate that 3Q23 revenue is +10% year-on-year, and the quarterly growth rate is slightly affected by hospital-side prescription pressure. We expect an increase of ~ 10% in 2023, and we expect to achieve 20-30% growth next year, driven by academic results and low cardinality effects: 1) The 3Q hospital prescription strategy is affected by the policy environment, and the penetration rate of Tongshanqi has continued to increase in recent years (Hospitals 2022 16.3% vs 2020 15.8 15.8) %, retail 6.4% in 2022 vs. 6.18% in 2020); 3) Tongxinluo's research results significantly improved the 30-day and 1-year clinical prognosis of ST segment elevation myocardial infarction (STEMI) patients, which were published in 10M23 in the top international medical journal “Journal of the American Medical Association (JAMA)” (IF 120.7), which is expected to drive a new round of academic marketing and patient base expansion.

Second-line varieties are growing rapidly, and innovative pipelines are quickly released

1) Sales of the new Bazi Kidney Supplement began at 5M23, with revenue of +150% year-on-year, and is expected to contribute 150 million in revenue for the whole year; 2) Class 1 of the new drugs to relieve depression (mild to moderate depression) and improve kidney health (insomnia) entered medical insurance at the beginning of the year, and admission progressed smoothly. We expect to contribute 50 to 60 million yuan in revenue in 23 years, and 2 to 3 billion yuan in the long term; 3) We estimate that the 1-3Q23 granular formula revenue will be 15,199 million yuan The variety to be selected from Shandong 10M23 Alliance procurement is expected to expand the incremental market in the future.

Risk warning: Product sales fall short of expectations, R&D falls short of expectations.