Event: The company released the 2023 three-quarter report, 2023 Q1-Q3. The company achieved revenue and net profit of 716 million yuan and 84 million yuan respectively, up 3.29% and 7.87% year-on-year respectively; the company's controlling shareholder, actual controller, and chairman proposed the company's share repurchase, planning to use the company's own capital to buy back not less than 10 million yuan of company shares and no more than 20 million yuan for employee stock ownership plans or equity incentives.

The evidence-based evidence of Panlong 7 tablets continues to upgrade, and it may be expected to enter the basic drug catalogue in the future. According to the company's semi-annual report for 2023, during the reporting period, Panlong Qipin was successfully selected for two guidelines: “Clinical Application Guidelines for the Treatment of Rheumatoid Arthritis with Proprietary Chinese Medicines (2022)”, “Chinese Guidelines for the Treatment of Chronic Musculoskeletal Pain with Proprietary Chinese Medicines”, and a consensus “Expert Consensus on Integrated Diagnosis and Treatment of Osteonecrosis with Traditional Chinese and Western Medicine”. As of H1 in 2023, Panlong 7 tablets have been selected into six national clinical diagnosis and treatment guidelines, three expert consensus, two national key textbooks, and one clinical pathway interpretation. It is also recommended as a clinical treatment drug, providing a scientific theoretical basis for the company's leading varieties in clinical use. In addition, the 2023 H1, Panlong seven-tablet real-world fracture treatment and pharmacoeconomics evaluation research project achieved phased results: the First Affiliated Hospital of the University of Science and Technology of China successfully completed the ethical approval of the project and included 31 hospitals. The topic is being further increased in sample hospital sources and case data. The project is expected to be completed in the second half of the year.

The repurchase of the company's shares shows firm confidence in the company's future strategy and development and the company's long-term value.

According to the company announcement, based on recognition of the company's values and firm confidence in the company's future development, Mr. Xie Xiaolin, the controlling shareholder, actual controller and chairman of the company proposed that the company use the company's own capital to repurchase not less than 10 million yuan of company shares and no more than 20 million yuan through centralized bidding, and use the repurchased shares for the company's employee stock ownership plans or equity incentives at an appropriate time in the future to further improve the company's incentive mechanism and enhance team cohesion and company competitiveness.

Performance is under pressure in the short term, gross margin continues to rise, and there is plenty of cash on the account. According to the company's 2023 three-quarter report, in 2023 Q1-Q3, the company's realized operating income and net profit of the mother were 716 million yuan and 84 million yuan, respectively, up 3.29% and 7.87% year on year; in Q3 of 2023, the company's realized operating income and net profit were 216 million yuan and 30 million yuan respectively, down 17.62% and 9.82% year on year respectively. The company's gross margin continued to rise. The gross margin for the Q1-Q3 quarter of 2023 was 49.37%, 59.31%, and 66.04%, respectively. As of Q3 of 2023, the company's monetary capital reached 1,097 billion yuan, which is quite abundant.

Investment suggestions: As a leading traditional Chinese medicine company in rheumatology and orthopedics, the company will continue to benefit from policy dividends, accelerated population aging trends, and consumption upgrading trends. We expect that in 2023-2025, the company will achieve operating income of 1.159 billion yuan, 1,416 billion yuan, and 1,779 billion yuan, and net profit of 125 million yuan, 149 million yuan, and 178 million yuan, respectively, year-on-year increases of 23.3%, 19.5%, and 19.4%. The corresponding EPS is 1.17 yuan, 1.40 yuan, and 1.67 yuan, respectively. The PE multiples corresponding to the current stock price are 36X, 30X, and 25X, respectively. Considering that the company is the leader in the industry segment and has obvious competitive advantages, the market share is increasing year by year, maintaining the “buy” rating.

Risk warning: New product development and new business development fall short of expectations, risk of a single dominant product, risk of increased market competition, and risk of changes in the prices of major raw materials.