2023 revenue and net profit after deducting non-net profit met our expectations
The company announced its 2023 results: revenue of 75.52 billion yuan, up 6.68% year on year; net profit of 4.06 billion yuan, up 2.25% year on year; net profit after deducting non-net profit of 3.64 billion yuan, up 9.53% year on year. 2023 revenue and net profit after deduction are in line with our expectations.
Development trends
The gross margin of the Danyao sector increased slightly in 2023, and the growth rate of the Chinese medicine sector accelerated. In 2023, Danan Pharmaceutical's revenue increased 4.09% year-on-year to RMB 10.89 billion. Among them, revenue from proprietary Chinese medicines increased 11.64% year on year (vs 6.59% growth rate in 2022); revenue from chemical drugs fell 4.67% year on year. The gross margin of the Danan Pharmaceutical segment was 48.74%, an increase of 0.79 percentage points over the previous year. In 2023, the company's sales revenue of products such as Qingkailing series, Xiaochaihu granules, Jinge, and thirst quenching pills all grew by more than 20% year-on-year.
The revenue of the Big Health sector increased 6.15% year-on-year in 2023 to RMB 11.12 billion. In 2023, the gross margin of the company's Big Health Division was 44.41%, an increase of 0.89 percentage points over the previous year. On the one hand, the company further enriches the health product range, and on the other hand, accelerates the process of brand internationalization by actively participating in international exhibitions, speeding up the localization and revision of overseas products, and continuing to promote trademark registration.
The revenue of the large commercial sector increased 7.39% year-on-year to RMB 52.76 billion in 2023. In 2023, the gross margin of the company's large commercial segment was 6.99%, a year-on-year decrease of 0.04 percentage points. The company's large commercial sector continues to enhance the wholesale business's ability to expand categories, network expansion, terminal access, logistics and distribution, promote market channel construction with variety resources, and further consolidate the four-in-one omni-channel strategy of “medical+business+e-commerce +retail”.
Profit forecasting and valuation
Considering the pressure on the prices of some chemicals in the Dananyao sector, we lowered the 2024 EPS forecast by 9.8% to 2.67 yuan, and introduced the 2025 EPS forecast of 2.86 yuan, with a year-on-year increase of 7.0%/7.0%, respectively. We maintained our outperforming industry rating and simultaneously lowered our target price for A shares by 5% to RMB 36.1, corresponding to a price-earnings ratio of 13.6 times/12.6 times in 2024/2025; we lowered our target price for H shares by 5.1% to HK$26, corresponding to 8.7 times/7.7 times the price-earnings ratio in 2024/2025. The current A-share price corresponds to a price-earnings ratio of 11.0 times/10.2 times in 2024/2025, and there is 23.5% room to rise from the target price. The current H share price corresponds to the 2024/2025 price-earnings ratio of 6.7 times/5.9 times, and there is 30.3% upward margin from the target price.
risks
Competition in the consumer market is fierce, and the price of Danan medicine is under pressure.