Items:

The company released its three-quarter report in 2023, with revenue of 5.184 billion yuan (+ 15.51%), net profit of 623 million yuan (+ 171.76%), and non-return net profit of 510 million yuan (+ 15.23%). In the third quarter, the company's income was 1.42 billion yuan (+ 0.88%), the return net profit was 107 million yuan (+ 532.29%), and the non-return net profit was 95 million yuan (- 27.35%). The impact of non-recurrent gains and losses stems from 1) the impact of changes in the market value of Jiahe biological shares held by the company, which increased profits by 160 million yuan compared with the same period last year in the first three quarters of 2023; 2) the company transferred 7.84% of the shares held by Zhenshiming company, confirming the net profit of 90 million yuan in equity disposal.

Comments:

The core business has grown steadily and the business structure has been continuously optimized. In the first three quarters, the company's traditional Chinese medicine health business grew steadily, with revenue of 3.442 billion yuan (+ 23%), accounting for 66.4% of the company's revenue (+ 4.29pct). The revenue of the self-care products business was 2.34 billion yuan (+ 23.68%), of which the revenue of the over-the-counter drug business was 1.91 billion yuan (+ 24.09%), and that of the health consumer goods business was 430 million yuan (+ 21.91%). The revenue of the prescription drug business is 1.622 billion yuan (+ 5.71%). The business of prepared pieces of traditional Chinese medicine has realized revenue of 540 million yuan (+ 37.75%).

The core products continue to expand, and the endogenous growth force is strong. In the first three quarters, the company's "Kangnbei" brand Changyanning series through increased brand promotion, brand co-building with chain drugstores, scene marketing and other models, sales revenue reached 1.1 billion yuan; "Conbe" brand health food through new category expansion, new channel layout and other ways, sales revenue of more than 400 million yuan, maintaining rapid growth; "Jinkangxili" brand acetylcysteine effervescent tablets increased by 36% compared with the same period last year. "Jinkanglingli" brand galanthamine hydrobromide tablets are rapidly used in the field of neurotherapy for benign memory impairment and senile dementia.

Investment suggestion: the company is an excellent brand traditional Chinese medicine enterprise in China, and there is a broad space for the growth of OTC and prescription drug business. we expect the company's 23-25 net profit to be 7.04,8.58 and 1.017 billion respectively, up 96.7%, 21.7% and 18.6% over the same period last year. With reference to history and comparable company valuation, the 23-year 25-fold target PE is given, corresponding to the target price of 6.8 yuan. Maintain the recommended rating.

Risk tips: core variety collection exceeds expectations, asset impairment and so on.