Empowered by the controlling shareholder, Zizhu Pharmaceutical China Resources Shuanghe (Company), a leading domestic manufacturer of women's health medicines, announced that it intends to use approximately 3.115 billion yuan of the company's own/self-funded capital to acquire 100% of Huarun Zizhu Pharmaceutical's shares held by Northeast Pharmaceutical Group, the holding stock of the company. Zizhu Pharmaceutical is a leading domestic manufacturer of medicines for women's health. We are optimistic that the company's move will help it form the leading domestic “Women's Health+Pediatric” specialty product series and further enhance the company's market influence. Looking ahead to 2023, considering that the company's infusion sector is in strong demand throughout the year and the non-infusion sector remains steady, we are optimistic that the company's net profit in 2023 will increase 15% year over year. We expect the company's EPS to be 1.29/1.46/1.61 yuan in 2023-2025, and give it 15 times PE in 24 years (since some of the company's varieties involved collection, compared to the company Wind's consensus expectation of 16 times PE) and a target price of 21.90 yuan to maintain “additional holdings”.

To acquire Zizhu Pharmaceutical, I am optimistic about implementing the 14th Five-Year Strategic Plan through epitaxial extension. Key points of this acquisition include: 1) Target: 100% equity interest in China Resources Zizhu Pharmaceutical; 2) Seller:

Beijing Pharmaceutical Group Co., Ltd. (Beiyao Group, holding 60.19% of the company's shares); 3) Cost:

RMB 3.115 billion (we estimate that Zizhu Pharmaceutical's net profit exceeds 300 million yuan in 23 years, which is about 10 times PE in 23 years, which is cost-effective); 4) Source of funding: China Resources Shuanghe's own/self-funded; 5) This transaction constitutes a related transaction but does not constitute a major asset restructuring. Considering Zizhu Pharmaceutical's leading position in the field of women's health medication, we are optimistic that this merger and acquisition may drive the company's net profit to continue to grow steadily over 24 years.

Furthermore, we are also optimistic that the company's subsequent expansion will accelerate in order to actively implement its 14th Five-Year Strategic Plan.

Zizhu Pharmaceutical: China's leading manufacturer of women's health medicines, optimistic about collaborating with Shuanghe's existing specialty products Zizhu Pharmaceutical as the leading manufacturer of female health medicines in China. We are optimistic that it will collaborate with the company's specialist section to create a leading “women's health+pediatric” product matrix. Zizhu Pharmaceutical's basic information includes: 1) The core product layout includes levonorgestrel (female contraceptive products. We estimate that this product matrix contributes products to Zizhu's main revenue), mifepristone and other specialty products; 2) 2021-M82/M22/M2 23 Yearly Revenue 9.59/7.06 100 million yuan, net profit of 269/282 million yuan, net margin 28/ 40% (higher than China Resources Shuanghe's overall net interest rate level of about 10% +).

State-owned enterprise reforms reduce costs and increase efficiency, and actively seek innovative strategic transformation

We expect the company to achieve a 10% year-on-year increase in revenue in 23. The main reason: 1) The infusion sector benefits from increased demand for hospital-side fever clinics and a stable competitive pattern, compounded by a gradual decline in high-margin BFS products, and is expected to achieve a 20% year-on-year increase in revenue throughout the year. 2) The chronic disease business in the non-infusion sector grew steadily, while the specialty business grew steadily with the abundance of products. Furthermore, we are optimistic that the company will seek innovative strategic transformation through self-development+mergers and acquisitions: 1) lay out 2 innovative technology platforms around innovative target mechanisms at the self-research level and explore the expansion of drug delivery routes and uses of already marketed products; 2) accelerate epitaxial development, or focus on assets (such as pediatrics, etc.) that can collaborate with existing pipelines. On the profit side, we are optimistic about the context of state-owned enterprise reform, which may drive companies to refine cost management and improve capacity utilization, resulting in a higher year-on-year growth rate of the company's net profit to mother than on the revenue side.

Risk warning: large infusion demand risk, product collection risk, merger and acquisition integration falling short of expectations.