Incident: The company released its 2023 annual report, and realized revenue, net profit attributable to mother, and net profit after deduction of RMB 24.84/5.85/571 million yuan respectively, an increase of 6.11%/11.08%/7.86% over the previous year. Net operating cash flow of $1,175 million, -1.82% YoY; EPS (basic) $2.50. It is proposed to distribute a cash dividend of 20 yuan (tax included) to all shareholders for every 10 shares, with a dividend payment rate of 80%. The core subsidiary Dyne Pharmaceutical achieved revenue and net profit of 2,426/1,182 billion yuan respectively, an increase of 18.88%/21.58% year-on-year. The results are generally in line with market expectations.
Comment:
The high increase in sales volume in the 4Q23 dyne pharmaceutical industry is related to mid-year sales policy adjustments and the resumption of in-hospital business activities in Q4.
The company's 4Q23 revenue, net profit attributable to mother, and net profit after deduction were $765/134/134 million, respectively, or +46.5%/93.1%/73.1% year-on-year, which is related to the strong growth of Dyne Pharmaceuticals. 4Q23 Dyne Pharmaceuticals' revenue and net profit were 740/280 million yuan respectively, +69.7%/98.6%. Some sales policy adjustments were made in mid-2023. Revenue growth was reflected in 4Q23. At the same time, 4Q23 academic conferences and new drug admissions returned to normal. Ikexin, dyne iron, dyne calcium, and pediatric ibuprofen suppositories all experienced rapid revenue growth. The company's main product, Yike's new payment method, is mainly advance payment. By the end of '23, the company's accounts receivable were only 62 million, and channel inventory remained at a reasonable healthy level.
In 2023, the withdrawal from the non-main business accelerated, and the profitability of Dyne Pharmaceuticals increased. Due to policy changes, Wolong School will no longer cooperate in running schools since 2023. The company has actively negotiated with the Yinan government on investment withdrawal and is currently undergoing a lawsuit process; in November 2023, Walt Information's application for bankruptcy and liquidation with the court was accepted and a manager was appointed; it is known that production of the new materials has stopped, and full preparations have been made for dissolution and liquidation. The revenue and net profit growth rate of listed companies in 2023 was significantly lower than that of Dyne Pharmaceuticals, which is related to the reduction in tuition revenue at Wolong School and non-main business matters such as Walt Information depreciation. In 2023, Dyne Pharmaceuticals gross margin was +0.34pp to 86.84% year on year, and net margin was +1.08pp to 48.71% year on year, a record high. It is estimated to be related to production cost control and investment income after 51% equity transfer between Dyne Health and Dyne Research Institute.
State-owned enterprise reforms continue to be deepened, and new products and new retail can be expected to grow. Dyne Pharmaceutical's “2023-2025 Mid-Term Incentive Plan” was registered and approved by the Shandong Provincial State-owned Assets Administration Commission. 23-25 is an assessment period, and 26-27 is an implementation period. It requires annual revenue and profit growth, which is conducive to stimulating the internal vitality of the enterprise. As the number of births steadily rebounded, children took longer, and adherence to taking one pill a day increased, we expect that Ecoxin will maintain steady growth and increase product penetration rate and market share. Dyne Iron's revenue was over 100 million in 2023, and in 2024, with the optimization and adjustment of the company's organizational structure, the new retail and OTC teams will start again to drive sales of Dyne Calcium and pediatric ibuprofen suppositories to over 100 million. The target revenue and net profit growth rate of listed companies in 2024 is not less than 10% year-on-year.
Profit forecasting, valuation and ratings: Walter Dyne is a leading children's medicine company. With brand and channel advantages, the core product group's revenue is growing rapidly, and the governance structure continues to improve. Without considering the divestment of Wolong School and the implementation of the medium- to long-term incentive pilot by the Provincial State-owned Assets Administration Commission, considering the increase in marketing and R&D investment, the 24-25 net profit forecast was slightly lowered to 6.69/770 million yuan (-1%/-3% compared to the previous forecast), and the net profit forecast for 26 years was 886 million yuan. The PE corresponding to the current stock price is 12/10/9 times, maintaining the “buy” rating.
Risk warning: Ike's new sales fall short of expectations; market competition intensifies; risk of failure in the development of new drugs.