Incident: China Resources Pharmaceuticals announced its 2023 full year results on March 26, 2024.
Comment: Revenue for the full year of 2023 was RMB 244.7 billion (+12.2%), with the three major businesses of pharmaceuticals, pharmaceutical distribution, and pharmaceutical retail accounting for 16% (+0.2%), 80% (-0.7%), and 3.9% (+0.4%) of revenue, respectively.
The gross profit margin was 15.7% (+0.3 pcts), mainly benefiting from the increase in the gross margin of the pharmaceutical business.
Sales expense ratio 7.73% (+0.22 pcts), management expense ratio 2.59% (+0.03pcts), financial expense ratio 0.92% (+0.12 pcts).
Total R&D expenditure was approximately $2,504 million (+12.6%). As of December 31, 2023, the Group has more than 330 research projects, including nearly 100 new drug projects, and more than 2,700 R&D personnel. The Group actively expands pipelines, improves molecular quality, and enhances R&D efficiency through independent R&D, external cooperation, investment and mergers and acquisitions.
Net profit of 7.775 billion yuan (+16.8%), net profit due to mother of 3.854 billion yuan (+10.1%). Excluding the impact of one-time projects such as disposal of subsidiaries and impairment of investment-related assets during the same period of the year, net profit increased 21.7% year over year.
By business, all businesses have achieved steady growth.
The pharmaceutical business generated revenue of 43.5 billion yuan (+14.3%), and all categories achieved revenue growth. Among them, revenue from traditional Chinese medicines/chemicals/biopharmaceuticals/nutritional health products was 216.170/21/2.7 billion yuan respectively, with year-on-year growth rates of 20%/9%/12%/7%, respectively, accounting for 50%/39%/5%/6% of pharmaceutical revenue, respectively. The year-on-year change was +2%/-0%/-0%, respectively. The gross profit margin of the pharmaceutical business is 59.1% (+1.7 pcts), mainly due to changes in business and product structure, as well as cost reduction and efficiency improvements. As of December 31, 2023, the Group is producing 796 types of drugs, of which 435 are in the medical insurance catalogue and 205 products are in the basic drug catalogue.
Distribution revenue was RMB 2022 billion (+11.4%), of which revenue from import business was about RMB 14.1 billion (+8%), and revenue from medical device distribution business was about RMB 32.3 billion (+7%; excluding the impact of epidemic prevention materials, the year-on-year increase was 22%). The overall gross profit margin of the distribution business was 5.9% (-0.2 pcts).
The Group is actively expanding the sinking market and strengthening diversified service capabilities. As of December 31, 2023, the Group's distribution network covered 28 provinces across the country, with about 240,000 customers, including about 11,000 secondary and tertiary hospitals, 100,000 primary medical institutions, and more than 230 logistics centers, which can achieve full management, storage and distribution of temperature-controlled products such as blood products and vaccines.
Pharmaceutical retail revenue of 9.6 billion yuan (+26.2%) mainly benefited from the Group's active acceptance of prescription outflows and continued enrichment and optimization of the product structure. Among them, DTP business revenue was 5.9 billion yuan (+16.3%).
The gross profit margin of the retail business is 7.6% (-0.5 pcts). We believe that the decline in gross margin is mainly affected by changes in the business structure. As of December 31, 2023, the Group had a total of 790 self-operated retail pharmacies, including 272 DTP specialty pharmacies (including 153 dual-channel pharmacies).
We believe that the Group will actively expand its business footprint through epitaxial mergers and acquisitions, while continuously integrating internal resources to achieve collaboration, and that the equity incentive plans for its subsidiaries are implemented in an orderly manner, which will help the Group achieve steady and sustainable growth.
Profit forecasting
Since most of the company's business is denominated in RMB and the reporting caliber for the 2023 financial report was adjusted from HKD to RMB, in order to reduce exchange rate disturbances, we will simultaneously use RMB for forecasting.
We expect China Resources Pharmaceutical to achieve revenue of RMB 2710/2993/329.8 billion yuan in 2024-2026 (previous value: HK$316.8 billion/ HK$347.6 billion in 2024/2025, respectively), corresponding growth rates of 10.8%/10.4%/10.2%, respectively; it will achieve net profit of 42.87/47.49/ RMB 5.241 billion respectively (previous value:
(HK$5.154/HK$5.708 billion in 2024/2025, respectively), corresponding growth rates were 11.2%/10.8%/10.4%, respectively.
valuations
Maintain a rating superior to the market and maintain the target price of 8.12 HKD. Assuming the RMB/HKD exchange rate is 0.92, based on 2024 PE 11X (originally 2023 11x), there is 57% room for increase compared to the current stock price (2024/03/26 closing price 5.17 HKD).
Risk warning
Industry policy risks such as health insurance fee control and centralized volume procurement, risk of market promotion, merger and acquisition integration falling short of expectations, risk of impairment of goodwill, and foreign exchange risk.