Core views:

Various achievements continue to grow, and the core competitiveness of the enterprise continues to increase. According to the company's annual report, in 2023, the company achieved operating income of 11.474 billion yuan, an increase of 8.81% year on year; realized net profit attributable to shareholders of listed companies of 1,055 billion yuan, an increase of 6.69% year on year; and realized net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 1,026 billion yuan, an increase of 22.73% year on year. The gross margin of the company's main business in 2023 was 25.60%, up 1.71 pct year-on-year.

Various business strategies have been promoted, and the three major businesses have achieved outstanding growth. According to the company's annual report, the APIs and intermediates business achieved sales revenue of 7.987 billion yuan, up 3.23% year on year, achieving gross profit of 1,426 billion yuan, up 8.63% year on year, gross margin of 17.56%; CDMO business achieved operating income of 2,050 billion yuan, up 27.10% year on year; achieved gross profit of 848 million yuan, up 31.04% year on year and gross profit margin of 42.29%; the formulation business achieved sales revenue of 1,249 billion yuan, up 15.69% year on year, achieving gross profit of 6.64 billion yuan 100 million yuan, a year-on-year increase of 17.94%, and gross margin of 53.14%.

Accelerate the promotion of a deep internationalization strategy and continue to increase investment in R&D. By the end of 2023, the market competitiveness of the company's API intermediates business continued to increase. Among them, the intermediates business secured a steady increase in the market share of strategic varieties; the API business added 25 new customers. The CDMO side quoted 905 projects, up 10% year on year; 736 ongoing projects, up 40% year on year, including 285 commercialization projects, up 26% year on year.

Profit forecasting and investment advice. As the company continues to improve operating efficiency and changes in the macro environment, we believe that the company's gross margin is expected to continue to rise. Net profit is estimated to be 1,178 billion yuan, 1,397 billion yuan, and 1,721 billion yuan respectively in 24-26 years, and EPS of 1.00 yuan/share, 1.19 yuan/share, and 1.46 yuan/share, respectively, corresponding to PE of 14, 11, and 9 times, respectively. Considering that the company's profitability is still improving, the company was given 17 times PE in 24 years, corresponding to a reasonable value of 16.99 yuan/share for A shares, maintaining a “buy” rating.

Risk warning. Supply chain risk, exchange rate fluctuation risk, regulatory review risk, etc.