Focusing on innovative research and development of traditional Chinese medicine, the core business ushered in a new chapter of development. Fangsheng Pharmaceutical is a high-quality, comprehensive, research-based medical and health industry group integrating the pharmaceutical industry, medical services, and big health business.
After years of horizontal and vertical business expansion, the company is now gradually returning to the main line, focusing on innovative traditional Chinese medicine business. It has successively divested non-core assets and created the “338 Plan” for innovative traditional Chinese medicine drugs. In 2022, the company achieved revenue of 1,792 million yuan (+14.36%), net profit attributable to mother of 286 million yuan (+308.12%), and net profit of non-return to mother of 107 million yuan (+69.03%). As the company effectively implements the “denuclearization” development strategy, we believe that the company's competitiveness in the field of innovative traditional Chinese medicine is gradually showing.
The 338 major product development plans lay the foundation for future development and continue to strengthen core competitiveness. The company actively lays out a series of major product strategies, enriches the product matrix, implements the “338 Major Product Creation Plan”, and strives to create 3 major 1 billion products, 3 500 million products, and 8 products over 100 million in the next 5-10 years. In 2022, the “338 Product” revenue accounted for about 70% of the total revenue of the pharmaceutical industry, and most products in the “338 Project” showed a steady growth trend. The company actively lays out advantageous traditional Chinese medicine fields such as orthopedics, pediatrics, respiratory medicine, gynecology, etc., and all fields have good potential for growth. We believe that focusing on core products and increasing strategic investment will effectively drive overall product matrix sales, which is expected to promote rapid growth in performance.
There is significant support for innovative Chinese medicine drug policies, and adjustments to the basic drug catalogue are expected to bring about flexible performance. In recent years, the country has issued a number of policies. Support for research and development of innovative traditional Chinese medicines has been strengthened, and the approval process for innovative traditional Chinese medicine drugs has been significantly accelerated. The company continues to increase R&D investment in traditional Chinese medicine innovation, and the R&D cost rate remains at the level of 3%-5%. Two innovative traditional Chinese medicines, Children's Jingxing Cough Remedies and Xuan Qijian Bone Tablets, were approved and included in national health insurance. In addition, many new traditional Chinese medicine drugs are being developed in the pipeline. We believe that new continuous products will drive the company's long-term growth. In addition, the company has a rich product range, but currently there are few shortlisted categories of basic drugs, so we continue to pay attention to the varieties that will be transferred later.
The equity incentive plan has been implemented to effectively stimulate the motivation of core members. In March 2022, the company announced an equity incentive plan to provide incentives for company executives, core business executives and related personnel (270 people in total). The performance assessment target is: based on 21, the 22-24 revenue growth rate is not less than 10%, 15%, 20%, or the net profit growth rate for 22-24 is not less than 12%, 17%, and 22%. We believe that through equity incentives, the company can not only effectively help achieve excellent performance indicators, but also maintain core management and business talents.
Profit forecast: We estimate that the company's net profit for 2023-2025 will be RMB 172 million, RMB 227 million and RMB 297 million respectively, corresponding to EPS of RMB 0.39, RMB 0.52, and RMB 0.68, respectively. The company optimizes its asset structure, focuses on innovative traditional Chinese medicine, and has a rich product matrix. Referring to comparable companies, we gave the company 2024 16-20X PE, corresponding to a reasonable value range of 8.25-10.31 yuan. For the first time, we covered it and gave it a “superior to the market” rating.
Risk warning: Risk of R&D progress falling short of expectations, risk of product sales falling short of expectations, risk of increased industry competition, risk of collection policies.