occurrences
Incident 1: On October 28, 2023, the company released its third quarter report. In the first three quarters of 2023, the company achieved revenue of 5.611 billion yuan, or -9.40% over the same period last year. Net profit of the mother was 386 million yuan, +3.58% over the same period, and net profit of non-return mother was 311 million yuan, +19.60% year-on-year.
Incident 2: On October 28, 2023, the company issued an announcement. Kunyao Group, China Resources 39, China Resources Shenghuo, and China Resources Hyundai participated in the registration and establishment of the 37th Research Institute. The registered capital of the 37 Research Institute is RMB 10,000 million, of which the Kunming Pharmaceutical Group has pledged an investment of RMB 40 million with its own capital and holds 40% of the shares of the 37 Research Institute. After the establishment of the 37th Research Institute, it will be included in the scope of the consolidated statements of the Kunyao Group.
Incident reviews
The company maintained double-digit growth in net profit from non-return funds, and business restructuring stimulated new momentum to maintain double-digit growth in net profit from non-return net profit. In the first three quarters of 2023, the company continued to carry out business restructuring and initiated marketing organizational changes, achieving operating income of 5.611 billion yuan, -9.40% year-on-year, net profit of 386 million yuan, +3.58% year-on-year, and net profit of 311 million yuan after deducting non-return net profit of 311 million yuan, +19.60% year-on-year. Looking at a single quarter, 2023Q3 achieved operating income of 1,840 billion yuan, -6.36% year-on-year, net profit of 163 million yuan, +4.20% year-on-year, and net profit after deduction of 133 million yuan, +15.61% year-on-year.
The company's gross margin continues to rise. The company's gross margin was 45.06%, +2.19 percentage points year-on-year. The company's period expense ratio for the first three quarters was 35.39%, +1.12 percentage points year over year; among them, the sales expense ratio was 31.05%, +1.79 percentage points year over year, management expenses rate 4.17% year over year, -0.31 percentage points year on year, and financial expenses rate 0.17%, and -0.36 percentage points year on year. The R&D expense rate was 0.77%, -0.42 percentage points over the same period last year. Net operating cash flow was -036 million yuan, +68.44% year-on-year, mainly due to a decrease in cash payments for goods purchased.
The 37 Research Institute was established to help the company set a benchmark for the 37 industry chain. On October 28, 2023, the Kunyao Group issued an announcement to invest in a new company. The Kunyao Group, China Resources 39, China Resources Shenghuo, and China Resources Hyundai participated in the registration and establishment of the 37 Research Institute; the registered capital of the 37 Research Institute is RMB 10,000 million, of which the Kunyao Group has pledged 40 million yuan with its own capital and holds 40% of the shares in the 37 Research Institute. After the establishment of the 37 Research Institute, it will be included in the scope of the company's consolidated statements. The 37th Research Institute is positioned as a new type of R&D institution for the 37th industry, guided by the government and led by the market. It aims to overcome the common key technologies of the 37 industries, break the technical barriers of the 37 industry, improve the missing links in the 37 industrial chain and innovation chain; promote the industrialization or technological radiation of relevant achievements through models such as project incubation and technology transfer, and promote the high-quality development of the 37 industry.
The establishment of the new company is in line with the strategic development direction of the Kunming Pharmaceutical Group. It helps the Kunyao Group to give full play to the company's layout advantages in the entire industry chain of the 37 industry chain, accelerate the integration of resources and collaborative empowerment between China Resources 39 and the company's 37 industries; help the Kunyao Group set a benchmark for the 37 industry chain and lay a solid foundation for the high-quality leapfrog development of the 37 industry.
Strengthen brands and channels to increase the growth rate of core products, and focus on R&D and innovation to continue to energize enterprises
The company will further promote integration with China Resources 39, accelerate the integration of CHC sector business and products into the 39 commercial channel, and achieve a steady increase in product terminal coverage and brand influence. The CHC division of 2023Q3 company has completed the integration of first-level channel providers in 20 provinces and regions in China. The sales volume per customer has increased dramatically, and the quality growth rate of CHC business has improved significantly. At the same time, key varieties of traditional Chinese medicine in Kunming, such as Ginseng Lingjian Spleen and Stomach Granules, Liver Relief Granules, Fragrant Sand and Stomach Relief Granules, Panlan Heat-clearing Granules, and Lung Clearing and Phlegm Pills all achieved an increase of more than 30% in the third quarter alone.
The company continues to strengthen the brand and academic empowerment of its products, while also broadening product channels. The channel penetration rate and market share of the company's 37th product group have been steadily increasing. 2023Q3 won the bid for injectable Chinese medicine volume procurement in Shanghai in order to stabilize the basic collection market and continue to maintain steady growth; in order to stabilize the basic collection market and continue to maintain steady growth; XueZetong won the bid in Shanghai's proprietary Chinese medicine volume procurement, laying the foundation for a breakthrough in the sales volume of this product in the Shanghai region. XueZetong oral products achieved a year-on-year increase of more than 10%, and the core product, Xuetong softgels, increased more than 20% year-on-year.
The company's research and development has been very fruitful. The company's self-developed antimalarial drug product, dihydroartemisinin piperaquine phosphate tablets, 40mg/320mg, passed the WHO-PQ certification on-site inspection and finally obtained PQ certification from WHO; the company's self-developed innovative drug for ischemic stroke, KYAZ01-2011-020, phase II clinical phase II, has started more than 20 research centers; the innovative drug suitable for ismonic acid dehydrogenase-1 (IDH1) gene mutation class 1, KYAH01-2016-079, continues to be enrolled in clinical phase I; the first domestic application of the same variety is consistent Additional information has been submitted for the evaluation of the KYAH06-2018-094 project for the generic drug psychotropic drug chemical injection, and the KYAH07-2022-190 project for the consistent evaluation of another oral product has completed preliminary research, and the data is being compiled to prepare the application for submission.
Investment advice
We maintain our profit forecast unchanged. The company's revenue for 2023-2025 is expected to be 91.19/100.87/11.090 billion yuan, up 10.1%/10.6%/9.9%, respectively, and net profit of 6.15/7.52/918 billion yuan, respectively, up 60.5%/22.3%/22.1% year on year, respectively, with corresponding valuations of 27X/22X/18X. Maintain a “buy” rating.
Risk warning
The risk of industry policy changes, the risk of drug research and development innovation, and the risk of product marketing falling short of expectations.