Incident: The full year of 2023 achieved revenue of 7.703 billion yuan (-7%, same below); net profit to mother of 100 million yuan (+16.05%); net profit after deducting non-return to mother of 335 million yuan (+33.45%); performance fell short of our expectations.
Business adjustments and deductions affect apparent performance, and are expected to go light in 2014: overall revenue declined in 2023 due to business structure optimization in the commercial sector and reduction in foreign aid operations; in addition, in the 23Q4 single quarter, the company achieved revenue of 2.01 billion yuan (+0.14%), achieving net profit attributable to mother of 58.67 million yuan (+458.75%), and realized net profit of 24.6 million yuan (+388.53%) without return to mother. Among them, the single Q4 company calculated large impairment, credit impairment of 11.92 million yuan, and asset impairment of 52.12 million yuan, which also affected apparent performance. We believe that the company's 23-year calculation of depreciation, combined with a series of integrations such as “100-day integration” and “one-year integration” after China Resources joined the company in 23, has laid a good foundation for the company's lightweight launch and high-quality development in '24.
The goal of the “strategic plan” is clear. The industrial CAGR will exceed 20% in the next five years: the 24th board of directors of the 10th session of the company decided to double operating income by the end of 2028 through endogenous development and epitaxial expansion, and industrial revenue to reach 10 billion yuan. Using an industrial scale, the company's 24-28 industrial revenue CAGR is close to 20%. In the field of aging health and chronic disease management, we focus on the 37 industrial chain to provide high-quality products, services and system solutions; at the same time, we also thoroughly explore the “Kunming Traditional Chinese Medicine 1381” boutique cultural treasures, give full play to the brand influence of the “Kunming Traditional Chinese Medicine 1381” century-old brand, and create a “leader in fine Chinese medicine”. We believe that the company's strategic plan is clear and implementation measures are specific. At the same time, China Resources's empowerment will also drive the improvement of KPC's management efficiency, and the net interest rate is expected to continue to rise in the future.
The business line is clearly divided, and the time is right for rebranding: the company established three divisions of “1381, 1951, and 777”; 1) “1381” carries Kunming Traditional Chinese Medicine, which has a history of more than 640 years, reshapes cultural brands and breaks through terminal coverage in multiple dimensions. In 2023, it has completed the integration of retail and medical system sales channels across the country, achieving key control from multi-level channels to focusing on key mainstream customers.
2) “1951” carries serious in-hospital medical products, combines “academic enablement+brand building” to build and enhance the brand value of Kunming Pharmaceutical; 3) “777” carries 37 oral formulations. Through continuous academic and brand exploration, it further explores the academic value of the 37 7 industry chain and builds a cardiovascular chronic disease management ecosystem centered on stroke prevention and treatment. In terms of variety, Hessetong for injection (freeze-dried) maintained steady growth in 2023, with an increase of 22.65%; Hesketong oral products achieved an increase of 19.44%. Among them, Hesketong softgels increased by 33.04% and Hesketone tablets increased by 15.09%. Oropharyngeal cleansing pills increased by 44.32%, Panlan fever clean-up pellets increased by 21.19%, and lung cleansing pills increased by 24.21%.
Profit forecasting and investment ratings: We are optimistic about 39's channel empowerment of KPC Group, and we are also optimistic about the rebranding of Kunming Traditional Chinese Medicine as an old brand with a history of more than 640 years in the new era. At the same time, considering that the company requires a certain amount of investment in the early brand building process, we lowered the company's net profit from 6.4/7.7 to 6.1/76 billion yuan in 2024 to 2025. The estimated net profit of the company to mother in 2026 is 970 million yuan, and the PE corresponding to the current market value is 25/21/16X, maintaining a “buy” rating.
Risk warning: Brand building falls short of expectations, risk of major policy changes in the industry, etc.