Financial Services Association, March 22 (Reporter Zhang Liangde) With the combined performance of Kunming Pharmaceutical Group (600422.SH), China Resources 39 (000999.SZ) achieved four consecutive years of growth in revenue and net profit. Industry insiders believe that the company's traditional Chinese medicine formula market has declined for the second year in a row. The prescription drug business sector may be the core of the company's performance changes in the next two years, but the inflection point of changes in the market pattern is approaching, and favorable health insurance policies for traditional Chinese medicine injections may boost the company's performance.

This evening, China Resources 39 released its 2023 financial report. Operating revenue reached 24.739 billion yuan, an increase of 36.83% over the same period last year; net profit attributable to shareholders of listed companies was 2,853 billion yuan, an increase of 16.50% over the previous year. Basic earnings per share reached 2.90 yuan, an increase of 16.94% over the previous year's 2.48 yuan.

At the same time, the board of directors of the company passed a resolution to distribute a cash dividend of 15 yuan (tax included) to all shareholders for every 10 shares, and to transfer 3 shares for every 10 shares from the capital reserve fund. The company's dividend payment rate reached 51.96%, a record high since 2001.

Looking at the company's business structure, CHC's health consumer goods business achieved revenue of 11.707 billion yuan, a year-on-year increase of 2.83%, and the Chinese medicine formula business showed negative performance growth for the second year in a row. The company said that due to the switch of national standards and the launch of alliance collection in 15 provinces, the prescription drug business achieved revenue of 5.220 billion yuan, a decrease of 12.64% year on year; however, the net profit of the combined KPC Group this year was 445 million yuan, up 16.05% year on year, bringing a certain increase in the company's performance.

The addition of KPC has not only enhanced China Resources 39's competitiveness in the field of traditional Chinese medicine, but also provided the company with a wider product line and market coverage. According to the five-year development plan announced by KPC Group on its board of directors, the company will focus on “inheriting quality Chinese medicines, with the 37 industrial chain as the core, the strategic core of aging health, expanding the field of chronic disease management, and becoming the first stock in the Yinfa health industry”, focusing on the two major business areas of chronic disease management centered on 37 series products and “Kunming Traditional Chinese Medicine 1381”. The goal is to double revenue by the end of 2028 and reach 10 billion yuan in industrial revenue.

Judging from China Resources 39's original business, the traditional Chinese medicine formula granule business may face greater market pressure in the short term. Although the national standard switch is accelerating, after the 15-provincial alliance collection, wider provincial collection and national collection are already on the agenda. With a sharp increase in new market entrants, the market competitive environment has changed greatly. Although the company still has a large first-mover advantage in most markets, under the collection system, it still faces the challenges of latecomers in terms of prices and changes in the regional market situation.

Recently, the Financial Services Association reporter learned from many industry insiders that although some new players in the formula granule market have impacted the share of the original companies in terms of price, some new entrants may experience large losses in the face of rising herbal medicine prices and relatively imperfect extraction processes themselves, while the original leading companies still have a comparative advantage, and the industry pattern may change starting in 2024.

Another major category of the company's prescription drugs is traditional Chinese medicine injections. A Financial Services Association reporter compiled recent medical insurance catalogue data and found that this year, the company's exclusive products, such as injections, huaxanthin injections, and non-exclusive Shenmai injections, shuxunin injections, and safflower injections all had varying degrees of medical insurance payment restrictions, such as severe relief restrictions or expanded scope of adaptation, or had a significant effect on improving the company's performance.