Deeply involved in medicine for 20 years, Taishan began steady expansion, and its performance recovered rapidly after 2020. The company was founded in 2002 and is mainly engaged in research, production and marketing of proprietary Chinese medicines, chemical preparations and APIs. Haili Pharmaceuticals and Xinning Pharmaceuticals were acquired in 2015, expanding the product matrix, promoting cough medicine as an exclusive product in the country, extending the industrial chain to specialty raw materials, and significantly increasing its comprehensive strength. In 2018, it acquired Guangdong National Medical Center and obtained 96 drug approvals. Since listing, it has been refunded 3 times to help break through production capacity bottlenecks. The CAGR for 2014-2019 revenue and net profit to mother was 21.72%/16.45%, respectively. Performance declined sharply due to the COVID-19 pandemic in 2020. Net profit to mother in 2022 was 178 million, +40% year over year, and net profit to mother has returned to 2019 levels.

Exclusive specialty cough medicine, rapidly expanding the scale of 1 billion dollars. In the in-hospital cough medicine market, proprietary Chinese medicines are dominant in scale and growth. In 2022, the market size of proprietary Chinese medicines for cough relief and expectoration relief was about 24 billion yuan, with retail pharmacies/public hospitals/public primary terminals accounting for 54%/32%/14% respectively. The company's specialty product, Cough Remedies, contains poppy shell ingredients. Prescriptions are scarce, and exclusive patent barriers are deep, creating core competitiveness with accurate curative effects and quick results. The sales CAGR for Cough Remedies in 2011-2019 was 23.35%, and the sales CAGR was 12.10%. Sales declined sharply due to the epidemic prevention and control in 2020, and have been recovering year by year since then. Sales revenue of Cough Remedies is 240 million yuan in 2022, and is expected to exceed 400 million yuan in 2023. The trend of population aging and marketing channel reforms will drive the volume and price of Cough Remedies to rise sharply, impacting the scale of 1 billion yuan.

Expand potential varieties and reform marketing channels to build a secondary growth curve. The company has a wide range of pharmaceuticals, with cough medicine tablets as the core, focusing on cultivating blood poison pills for skin diseases and hypoglycemic relief pills, and reserves a number of strategic varieties. In 2021, China had 121 million acne patients, and the market size of acne treatment drugs was 3.4 billion yuan. Frost & Sullivan predicted a compound growth rate of 19.4% in 2021-2025E. Dermatological blood poison pills have remarkable efficacy in treating mild and moderate vulgaris, and the safety and competitive pattern are good. It went on sale at the end of 2020. It is expected to sell for 30 million yuan in 2023, and is expected to achieve revenue of 300 million yuan within 5 years, making it the leading product for oral traditional Chinese medicine for acne. Hypoglycemic pills are suitable for diabetes and systemic syndromes caused by diabetes. Currently, the market is still in the development stage, and the scale is expected to exceed 100 million within 5 years. Based on the brand and channel advantages established by Cough Remedies, the company will transform its marketing model, strengthen retail and tertiary terminal coverage, increase market development for strategic products, and build a secondary growth curve.

Profit forecasting, valuation and rating: The company has an exclusive specialty product, cough medicine tablets. It has deep prescription and patent barriers, broad long-term development space, and is expected to achieve a sharp rise in volume and price. Expanding potential varieties and reforming marketing channels to start a second growth curve. We forecast that the company's net profit from 2023 to 2025 will be 2.53/2.85/361 million yuan, an increase of 42%/13%/27% year-on-year, and the current stock price corresponds to PE 26/23/18 times. Combining the two methods of relative valuation and absolute valuation, the company was given a target price of 19.50 yuan (corresponding to 25 times PE in 24 years). Covered for the first time, a “gain” rating was given.

Risk warning: the volume of core products falls short of expectations; marketing channel reform falls short of expectations; competition in the industry intensifies.