Items:

The company released the third quarterly report of 2023: in the first three quarters of 2023, the company realized operating income of 8.575 billion yuan (+ 7.91%), net profit of 1.759 billion yuan (+ 24.35%), and non-net profit of 1.64 billion yuan (+ 15.84%).

In the third quarter, the company achieved an income of 17.84 yuan (- 25.02%), a net profit of 153 million yuan (- 58.26%) belonging to the shareholders of the listed company, and 99 million yuan (- 72.80%) of non-net profit.

Peace viewpoint:

Breathing plate short-term pressure: Lianhua Qingwen is an important product of the company, which has a high sales base in the same period last year, which brings pressure on the growth of performance in the third quarter of this year. We expect the revenue of Lianhua to decline by 15% and 20% in the first three quarters. In winter, with the arrival of the flu season, Lianhua scavenging channel end and residents' home inventory is expected to be quickly consumed to prepare for the next growth. The results of the international multicenter clinical trial of Lianhua Qingwen are positive. With the continuous achievements of evidence-based medicine, the product is expected to achieve steady growth.

With the resumption of normal diagnosis and treatment in the hospital, cardio-cerebrovascular products have grown steadily: in the field of cardio-cerebrovascular diseases, the company has developed three innovative patented traditional Chinese medicines: Tongxinluo capsule, Shensong Yangxin capsule and Qiliqiangxin capsule. The scope of treatment covers the most common indications of ischemic cardio-cerebrovascular disease, arrhythmia and heart failure. Hospital-end diagnosis and treatment returned to normal, and the products in this sector are expected to achieve double-digit growth in the first three quarters.

Research and development is progressing steadily to make reserves for long-term growth: at present, Tongxinluo Mingmu capsule, an innovative traditional Chinese medicine, has obtained the drug registration certificate; evidence-based research on Tongxinluo in the treatment of acute myocardial infarction has been published in international top medical journals; Chaihuang Lidan capsule III and its clinical subjects are out of group; phase III clinical subjects of Yuping Tongqiao tablet are out of group; Xiaoer Lianhua Qinggan granule is in phase III clinical trial; Luobitong tablet is in phase III clinical trial. During the reporting period, the company completed a randomized, double-blind, international multicenter clinical study on the efficacy and safety of Lianhua Qingwen capsule in the treatment of patients with mild to moderate COVID-19 infection, and completed a series of evidence-based medicine work such as the effect of Jinlida granule on blood glucose fluctuation and its metabonomics in patients with type 2 diabetes mellitus.

Maintain the "recommended" rating: the company's Lianhua Qingwen has a solid customer base in the antiviral field, and its market share in the antiviral field continues to increase; second-tier products are in the stage of expanding the market, and sales are growing steadily. The overall operation of the company is stable, and we maintain our profit forecast. We expect the company's net profit from 2023 to 2025 to be 2.462 billion yuan, 2.924 billion yuan and 3.396 billion yuan respectively, maintaining the "recommendation" rating.

Risk tips: 1, the risk of industry policy adjustment. The pharmaceutical industry is greatly affected by policies, and various policies have been introduced intensively in the past two years, which may have an impact on the performance of the company.

2. The risk of drug price reduction. The implementation of measures such as drug bidding and price reduction, secondary price negotiation and medical insurance policy adjustment will affect the performance of pharmaceutical companies. 3. The risk of raw material price fluctuation. The company's main products are proprietary Chinese medicine, and the raw materials come from all over the country. The price of traditional Chinese medicine is easily affected by weather and region, which leads to the fluctuation of the company's cost.