Investment logic: 1) The 10-billion-level market for proprietary Chinese medicines for rheumatoid bone injury is imminent: in 2020, the number of patients with osteoarthritis in China exceeded 130 million, the market for proprietary drugs in the musculoskeletal system reached nearly 23 billion yuan, and accelerated aging has spawned huge demand for treatment. 2) Important catalysts: The core product, Panlong 7, has strong competitiveness, and is expected to benefit from the base drug catalogue update to achieve volume in the future: Panlong 7 tablets are the company's core product, medical insurance category A + exclusive varieties have obvious advantages, and the evidence-based medical evidence chain is perfect. We judge that it is more likely to enter the base drug catalogue and is expected to drive the rapid release of the company's performance.

3) Proprietary Chinese medicine product line is in full bloom: Proprietary Chinese medicine products focus on rheumatology and orthopedics and extend to 12 major functional categories, including cardiovascular and cerebrovascular, and are expected to achieve collaborative release through resonance effects.

Focusing on proprietary Chinese medicine for rheumatoid bone injury, the industry's 10 billion market is about to expand: as an established proprietary Chinese medicine company, the company focuses on the field of proprietary Chinese medicine for rheumatoid bone injury. In 2020, there were more than 130 million patients with osteoarthritis in China, and the market size of proprietary drugs in the musculoskeletal system reached nearly 23 billion yuan. The aging process in China is accelerating, huge demand for treatment is expected to be gradually released, and along with the elimination of adverse factors in the proprietary Chinese medicine industry, we judge that the market for proprietary drugs in skeletal muscle systems is expected to continue to grow, and the company is expected to fully benefit from industry growth and achieve its own product volume.

Panlong 7, the core product, may enter the base drug, which is expected to promote the rapid release of the company's performance. Panlong 7 tablets is the company's core product, and its market competitiveness is strong. 2022H1 ranks first in the market share of proprietary Chinese medicines for rheumatoid diseases of the skeletal musculoskeletal system in China, and the advantages of exclusive medical insurance category A + varieties are obvious. The company continues to lay out and upgrade Panlong 7's evidence-based medical evidence chain. We believe it is more likely that it will enter the base drug catalogue. Referring to the dosage rhythm after the exclusive varieties of Jin Zhen oral liquid and Wuling capsules were selected in the base drug catalogue, if Panlong Qi is successfully selected as a base drug, it is expected to drive the company's proprietary Chinese medicine business to expand rapidly and achieve rapid release of the company's performance.

The proprietary Chinese medicine product line is in full bloom, and it is expected that the amount will be released collaboratively through resonance effects. The company focuses on rheumatology and orthopedics to form a complete product matrix. Bone injury products such as Bonesobao tablets and Panlong 7 medicinal alcohol are expected to form a resonance effect with Panlong 7 tablets to achieve collaborative volume; creating a general product cluster. The product line extends from orthopedics to 12 functional categories such as cardiovascular, cerebrovascular, digestive, etc., and exclusive varieties of Jinyinli Gol capsules and Kebireye tablets have obvious advantages, and a rich product line has created a huge moat.

The pharmaceutical distribution+health industry is gaining strength, and the revenue structure is diversified. The company's smart logistics platform has basically achieved full coverage of the pharmaceutical and device distribution networks in Shaanxi. Its strategic partners include thousands of pharmaceutical manufacturers and more than 4,000 medical institutions and pharmaceutical companies across the country. The company laid out the “Internet+Healthcare” circuit, developed 23 major health products in 2022, and built a large health product cluster covering oral health, functional foods, personal care products and medical devices, injecting momentum into the company's long-term development.

Investment suggestions: The company has been deeply involved in the field of rheumatology and bone injury for more than 20 years. The core product, Panlong 7, may enter the base drug to achieve rapid release. The proprietary Chinese medicine product line has built a generous moat, and businesses such as pharmaceutical distribution, the health industry, and Chinese medicine tablets are expected to continue to contribute to growth. We expect revenue for 2023-2025 to be 11.3/14.3/ 1.79 billion yuan, up 16.2%/26.6%/25.2% year on year, respectively; net profit is 1.2/1.6/210 million yuan, respectively, up 18.5% /34.9%/30.3% year on year. First coverage, giving a “buy” rating.

Risk warning: Product sales fall short of expectations, product development under development falls short of expectations, and market competition intensifies