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Connbey released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 5.184 billion yuan, +15.51% year-on-year; net profit of 623 million yuan, +171.76%; net profit after deduction of 510 million yuan, +15.23%; and net operating cash flow of 658 million yuan, +26.80% year-on-year.
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The growth rate on the profit side of 23Q3 was impressive. The net profit margin continued to increase in the first three quarters, 23Q3's revenue was 1,420 billion yuan, 0.88% year-on-year; net profit was 107 million yuan, +532.29% year-on-year. The rapid growth on the profit side was mainly due to non-prescription products such as the company's core products, “Connbay” brand vitamin C series, health consumer products such as “Connbay” brand vitamin C series, and “Jinkang Suli” brand acetylcysteine effervescent tablets, etc., and sales of traditional Chinese medicine tablets increased well.
The company's gross sales margin for the first three quarters of 23 years was 61.11%, -0.53 percentage points; net sales margin was 13.50%, +6.73 percentage points; sales expense ratio 35.81%, +0.16 percentage points; management expense ratio: 7.65%, -0.57 percentage points; R&D expenses rate 3.17%, -0.02 percentage points; financial expenses ratio -0.15%, +0.03 percentage points year-on-year. Net profit margin increased significantly in the first three quarters, and profitability continued to increase.
Revenue from non-prescription drugs and traditional Chinese medicine tablets increased significantly. The revenue of the Enteric Yanning series exceeded 1.1 billion yuan in the first three quarters. Looking at the company's main business revenue by product breakdown, the prescription drug sector's revenue was 1,622 million yuan, +5.71%; the Chinese medicine tablet sector's revenue was 540 million yuan, +37.75%; the health consumer goods sector's revenue was 430 million yuan, +21.91% year over year; the non-prescription sector's revenue was 1,910 million yuan, +24.09%; other sectors had revenue of 682 million yuan, +1.83% year-on-year. Revenue growth in the non-prescription drugs and traditional Chinese medicine tablets sector was impressive.
The company's core products continued to expand, with sales revenue of “Connbay” reaching 1.1 billion yuan; “Connbay” brand health food products continued to grow rapidly, with sales revenue exceeding 400 million yuan through new category expansion and new channel layout on the basis of stable stocks; and “Jinkang Speed” brand acetylcysteine effervescent tablets increased 36% year-on-year. The “Jinkang Lingli” brand of galantamine hydrobromide tablets is also showing a rapid upward trend in the field of neurological treatment for benign memory impairment and senile dementia.
Forty new R&D projects have been set up, and innovation capabilities have been gradually improved
The company continued to increase its R&D efforts. By the first half of '23, 40 new R&D projects had been established, an increase of 67% over the previous year, mainly the development of raw materials and generic drugs, MAH and hospital formulations, and post-marketing clinical projects. Currently, there are more than 180 research projects, including more than 20 innovative projects. In the first half of 2023, the company obtained approval for a total of 2 varieties (4 specifications) of azithromycin for injection, piperacillin sodium, and tazobactam sodium for injection, obtained approval for generic drug registration for oral risperidone solution, obtained approval for drug clinical trials for inhalation, and obtained 16 authorizations and patents.
Investment advice: Maintaining a “buy” rating
Connbey has gone through state-owned capital investment and mixed reforms. Its core development strategy focuses on the big health sector of traditional Chinese medicine. At the same time, Connbey's 1 billion yuan grade single product has a good competitive pattern, and there is plenty of room for growth. We maintain our previous profit forecast. The company's revenue for 2023-2025 was 70.45/80.82/9.138 billion yuan, up 17.4%/14.7%/13.1%, respectively, and net profit of 6.79/8.84/1,041 billion yuan, respectively, up 89.5%/30.2%/17.7% year on year, respectively, and the corresponding valuation was 20X/15X/13X. We maintain a “buy” rating.
Risk warning
Risks of industry policy changes, R&D innovation risks, etc.