Incident: Kunyao Group released its 2023 annual report. In 2023, the company achieved operating income of 7.703 billion yuan, a year-on-year decrease of 6.99%; realized net profit of 445 million yuan, a year-on-year increase of 16.05%; realized net profit withheld from mother of 335 million yuan, an increase of 33.45%; net operating cash flow of 356 million yuan, an increase of 40.25% year on year; and the company's EPS in 2023 was 0.59 yuan/share, up 15.69% year on year.
The total cash dividend to be distributed by the company in 2023 is RMB 151 million (tax included).
Comment:
Net profit to the mother grew rapidly, and the injection business performed well. According to the company's announcement, in the fourth quarter of 2023, the company achieved revenue of 2,092 billion yuan (+0.14% year over year) and net profit to mother of 58 million yuan (+458.75% year over year). The increase in net profit in 2023 was mainly due to cost reduction and efficiency brought about by continuous optimization of the company's product structure and promotion of multiple initiatives. According to the annual report, from the revenue side, the company's oral dosage business achieved revenue of 3,055 billion yuan (+5.58%) in 2023, the injection business achieved revenue of 1,059 million yuan (+11.09%) in 2023, and other businesses achieved revenue of 105 million yuan (-63.39%) in 2023. The company's overall gross sales margin and net margin increased slightly year-on-year in 2023. On the cost side, in 2023, the company's management expenses rate and financial expense ratio declined year on year, sales expenses rate and R&D expense ratio increased year on year, and overall cost control was relatively steady.
Continue to promote research and development of new drugs and enrich the core product pipeline. According to the company's annual report, in 2023, the company added 29 new patent authorizations, and successfully passed the 2023 national intellectual property demonstration enterprise review, and was once again awarded the title of “National Intellectual Property Demonstration Enterprise”. In addition, tests are progressing in an orderly manner. The clinical phase I climbing phase study of KYAH01-2016-079, an innovative drug suitable for isocitrate dehydrogenase-1 (IDH1), has completed the enrollment of 3 dose groups; drug marketing license for seviramgam carbonate suspension and KPC-, a new chemical drug with improved chemical class 2.2 149 The application for clinical trials of oral solution drugs has been accepted by the State Drug Administration. Clonazepam injection, which was the first domestic drug of the same breed to be declared for consistency, passed the consistent evaluation of the quality and efficacy of generic drugs. The above product development progress is progressing steadily, and the core product pipeline continues to be enriched. We believe that the company's investment in new drug research and development is expected to bring new performance growth points.
In 2024, the three major divisions are poised to focus on the development of the Yinfa Health Industry. According to the 2024 business plan in the annual report, the company will focus on building two major business platforms: aging health - chronic disease management and boutique Sinopharm 1381. Focusing on the strategic goal of reshaping the development pattern of the Yinfa Health Industry, the company's three major divisions are ready to go, namely the KPC 1951 division focusing on core treatment fields such as “cardiovascular, skeletal muscle, respiratory system, and neuropsychiatry”; the Kunming Traditional Chinese Medicine 1381 Division, which has more than 600 years of time-honored brand value and is committed to the goal of becoming a “leader in quality Chinese medicine”; and the 377 Oral 777 Division, which focuses on the 37 industry chain and is dedicated to the field of chronic disease management and aging health.
Profit forecast and investment rating: We expect KPC's 2024-2026 revenue to be 81.80/86.72/9.122 billion yuan, respectively, and net profit to mother of 581/686/812 million yuan, respectively. The corresponding PE is 29/23/20X, respectively, to maintain the “gain” rating.
Risk factors: market and policy risks, drug price reduction risks, raw material price fluctuation risks, R&D innovation risks.