2023 results slightly exceeded our expectations

The company announced its 2023 results: revenue of RMB 10.22 billion, up 6.20% year on year; net profit to mother of RMB 1.33 billion, up 12.96% year on year; after deducting non-net profit of RMB 1.23 billion, up 13.26% year on year, slightly exceeding our expectations. The company's net profit margin for 2023 was 12.97%, an increase of 0.1 percentage points over the previous year, mainly due to lower costs for key products.

Development trends

The gross margin of large infusions increased year-on-year. In 2023, revenue from the infusion business increased 22.33% year on year to 3.18 billion yuan, gross margin was 53.72%, up 5.44 percentage points year on year, mainly due to the company's scale effect. In 2023, the company seized market opportunities, sales increased sharply year on year, and basic infusion revenue increased 32% year over year. In 2023, the company further focused on four major bases: Wuhu, Anhui, Wuhan, Hubei, Xi'an, Shaanxi, and Pingdingshan, Henan, to improve the level of production line automation.

The chronic disease business was affected by collection, and the company actively took countermeasures. In 2023, chronic disease business revenue declined 5.88% year over year to 3.13 billion yuan. Revenue from the core product No. 0 in the field of antihypertensive disease increased 2% year on year, but revenue declined due to collection of some chronic disease products. The company actively developed new channels and actively expanded the off-standard market to cope with the price pressure of some chronic disease products. Among them, sales increased 14% year over year after being selected for collection of beciline (nifedipine controlled-release tablets). After approval, the seventh batch of nifedipine controlled-release tablets was selected to obtain an increase in sales volume, and sales of the unsuccessful variety (irbesartan dispersible tablets) increased 19% year over year.

The scale of specialist business is growing steadily. In 2023, specialist business revenue increased 7.42% year on year to 1.52 billion yuan; gross profit margin was 65.20%, down 3.72 percentage points year on year. In 2023, revenue in the pediatric drug sector fell 15% year on year, but the core products Colisu and pediatric amino acids still maintained the largest market share. The company is expanding new pediatric products and speeding up the introduction of new products such as lacosamide oral solution. Revenue in the field of nephrology increased 27% year on year, and revenue from the core product peritoneal dialysis solution increased 33% year over year. Sales revenue in the mental/neurological sector increased 5% year over year, and revenue from the new product Pregabalin increased 51% year over year. Revenue in the oncology sector increased by 182% year over year.

Profit forecasting and valuation

We maintained 2024/2025 net profit of 15.5/1.78 billion yuan, an increase of 16.1%/15.2% year-on-year.

We maintain our outperforming industry rating and target price of 23 yuan, corresponding to a price-earnings ratio of 15.5/13.4 times 2024/2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 13.5/11.7 times, with 14.4% upside from the target price.

risks

The impact of the policy on product prices exceeded expectations, R&D progress fell short of expectations, and the competitive landscape deteriorated.