Incidents:
The company released its 2023 annual report. In 2023, the company achieved operating income of 7.703 billion yuan (YoY -6.99%), net profit of 445 million yuan (YoY +16.05%), net non-return net profit of 335 million yuan (YoY +33.45%), net cash flow from operating activities of 356 million yuan (YoY +40.25%), and total assets of 9.565 billion yuan (+1.41% compared to the end of 2022).
With 2023Q4, the company achieved operating income of 2,092 million yuan (YoY +0.14%), net profit attributable to mother of 59 million yuan (YoY +458.75%), and net profit not attributable to mother of 0.25 million yuan (YoY +388.53%).
Comment:
1. Structural optimization promoted cost reduction and efficiency, and profitability improved markedly in Q4 and throughout the year. After China Resources entered the market in 2023, the company implemented “four reshapings”, initiated marketing reforms, and was deeply integrated with China Resources 39 in terms of channels and brands, continuously optimizing the product structure to promote cost reduction and efficiency, achieving net profit of 445 million yuan (YoY +16.05%) throughout the year; single Q4 achieved net profit of 59 million yuan (YoY +458.75%), mainly due to the epidemic and collection pressure in the same period last year. The company achieved annual revenue of 7.703 billion yuan (YoY -6.99%), mainly due to business structure optimization in the commercial sector and reduction in foreign aid business.
2. Focusing on 37 industries+Kunming traditional Chinese medicine, the core products are growing rapidly. The company's three major divisions, “KPC1951, Kunming Traditional Chinese Medicine 1381, 777”, have a rich product matrix, and continue to make efforts inside and outside the hospital. In 2023, the company combined “academic+brand” to build 37 product clusters, continuously increasing its market share, channel penetration rate, and brand awareness. Hesketong (freeze-dried) won the bid and stabilized the basic market, with a year-on-year increase of 22.65%; Hesetong oral administration increased 19.44% year-on-year, of which Hesetong softgels increased 33.04% year-on-year and Hesketong tablets increased 15.09% year-on-year. In terms of traditional Chinese medicine in Kunming, the company used 39 commercial channels to break through terminal coverage, and the results were remarkable. Soothing liver granules increased 11.11% year on year, potential varieties of oropharyngeal cleansing pills increased 44.32% year on year, and lung cleansing pills increased 24.21% year on year. Furthermore, the company relied on Shenling Spleen and Stomach Granules to start a fast digestion model and try to extend the Kun Traditional Chinese Medicine brand to the field of health.
3. Focus on innovation and cultivate the aging race track. On January 15, 2024, the State Council issued the first special document to support the development of the Yinfa economy, “Opinions on Developing the Yinfa Economy to Improve the Welfare of the Elderly”, which calls for the development of traditional Chinese medicine services such as the prevention of geriatric diseases and chronic diseases. The company's strategic positioning is “Yinfa Economic Health First Stock”, “Chronic Disease Management Leader, Premium Chinese Medicine Leader”. Using China Resources's layout advantages in the traditional Chinese medicine industry chain and central enterprise platform resources, the company has solidly promoted the construction of the 37 and Artemisia industry chains, stabilized the company's basic market, and continued to lay out differentiated R&D pipelines around the field of aging health. The self-developed Class 1 drug for ischemic stroke KYAZ01-2011-020 Clinical Phase II has launched more than 20 research centers and has successfully joined more than 20 research centers.
Profit forecast: We expect the company's 2024-2026 revenue to be 89.52, 98.69, and 10.900 billion yuan respectively, with year-on-year growth rates of 16.21%, 10.25%, and 10.45% respectively, and net profit to mother of 736, 9.73, and 1.05 billion yuan respectively. The year-on-year growth rates are 65.58%, 32.12%, and 13.61%, respectively, corresponding to the current stock price PE of 21, 16, and 14 times, respectively, maintaining the “Highly Recommended” rating.
Risk warning: risk of product collection price reduction, risk of business integration falling short of expectations, risk of changes in industry policies, risk of price fluctuations in raw materials, risk of new product development falling short of expectations, risk of market development and brand building falling short of expectations, risk of sales of core products falling short of expectations, product quality risks, etc.