Incident: 2024. 3.21 The company released its 2023 annual report. The company achieved consolidated revenue of 7.7 billion yuan, a year-on-year decrease of 7% due to the optimization of the commercial sector's business structure and reduction in foreign aid business; the company continued to optimize its product structure and promote cost reduction and efficiency, achieving a total profit of 550 million yuan, an increase of 18% over the previous year; and achieved net profit of 4.4 billion yuan, an increase of 16% over the previous year. Net profit after deducting non-return to mother was 340 million yuan, an increase of 33% over the previous year.
Oral doses continue to gain strength, and injections are growing steadily. By sector in 2023, oral medications achieved revenue of 3.1 billion yuan, an increase of 6% year on year; injections achieved revenue of 1.1 billion yuan, an increase of 11% year on year; and wholesale and retail sales of pharmaceuticals achieved revenue of 3.3 billion yuan, down 7% year on year. By product, 1) Hemosideron for injection (freeze-dried) maintained steady growth, with a year-on-year increase of 23%. The sales volume was 73.85 million units, an increase of 25% over the previous year. It mainly won the bid for the collection of proprietary Chinese medicines. 2) Hesketong oral products achieved a 19% year-on-year increase. Among them, Hesketong softgels increased 33% year over year, with sales volume of 680 million capsules, mainly because the company accelerated industrial layout, strengthened brand building, and promoted sales growth; Hesketong tablets increased 15% year over year. 3) Kun TCM's liver relief granules increased 11% year over year, oropharyngeal cleansing pills increased 44% year over year, Panlan heat clearing granules increased 21% year over year, and lung cleansing and phlegm relief pills increased 24% year over year.
Implement the “four reinventions”, launch marketing changes, and successfully complete the 2023 transition period. The company comprehensively and further promotes value reshaping, business reshaping, organizational reshaping, and spiritual reshaping to achieve full integration and upgrading with China Resources 39. Based on the current situation and product structure of the Kunming Pharmaceutical Group, marketing organization reforms were initiated, and the three core divisions “KPC1951, Kunming Traditional Chinese Medicine 1381 and 777” were established to promote the company's business implementation by inheriting quality Chinese medicines, building 37 benchmarks, and deepening the elderly health industry. Using China Resources 39's rich management experience, 6S management systems and tools, it has promoted digital transformation and the implementation of refined management, and management expenses and financial expenses have all been reduced.
Expand marketing channels and build a pharmaceutical business road in Kunming. On the basis of the 39 commercial channels, the company further integrates commercial channels, optimizes the original business model, continues to build “reasonable coverage, rapid circulation, and effective sales” Kunyao sales channels, complete the integration and construction of Kunyao sales channels in retail and medical systems across the country, and achieve key control from multi-level channels to focusing on key mainstream customers.
Long-term logic: The five-year strategic plan was implemented, and industrial revenue reached 10 billion yuan by the end of 2028. The company formulated a five-year (2024-2028) strategic development plan. Kunyao Group focuses on the two core business areas of premium Chinese medicine and geriatric health—chronic disease management. Through a short, medium-, and long-term three-step development action plan, and endogenous development plus epitaxial expansion, the company strives to double revenue by the end of 2028, and reach 10 billion yuan in industrial revenue, and is committed to becoming the first stock in the Yinfa Health industry.
Investment proposal: The five-year strategic plan has been implemented, and industrial revenue will reach 10 billion yuan by the end of 2028. It is expected that oral products will continue to be released under the power of China Resources 39, and injections will gradually recover their growth rate under policy recovery and volume collection. We expect the company's 2024-2026 net profit to be 576/708 million yuan, and the current stock price corresponding to 2024-2026 PE is 27/21/16 times, maintaining the “recommended” rating.
Risk warning: the risk that rising raw material prices will affect the gross margin of the product; the risk that exchange rate fluctuations will affect the company's exchange earnings; the risk that downstream demand will not recover as expected; the risk that product sales fall short of expectations; and the risk that R&D progress falls short of expectations.