Incident: The company released its 2023 annual report, achieving operating income of 14.566 billion yuan, +15.35%; net profit to mother of 4.532 billion yuan, +9.47% year over year; net profit after deducting non-return to mother of 4.516 billion yuan, +9.63% year over year; net operating cash flow of 5.104 billion yuan, +80.57% year over year; EPS (basic) 11.21 yuan. The results are in line with market expectations.

Comment:

Growth hormone long-term water injections increased, and sales payback improved significantly: 2023Q1-Q4, the company's revenue in a single quarter was 27.78/33.90/45.14/38.84 billion yuan, respectively, -6.63%/+18.69%/+18.32%/+30.30%; net profit to mother 8.57/13.03/14.52 billion yuan, YoY -24.71%/+32.78%/+36.12%; net profit not attributable to mother 8.54/13.10/14.52 /899 million yuan, -23.93%/+34.22%/+9.05%/+30.65%. Looking at subsidiary companies, Jinsai Pharmaceutical's revenue was 11.084 billion yuan, +8.48% year on year, net profit of 4.514 billion yuan, +7.04% year on year. Of growth hormone revenue, the share of long-acting water injections has increased to about 29%, powder needles account for about 11%, and water needles account for about 59%; Baike Biotech's revenue is 1,825 million yuan, +70.30% year on year, net profit to mother of 501 million yuan, +175.98% year on year; Huakang Pharmaceutical's revenue was 703 million yuan, +6.73% year on year, net profit of Gimu + 0.37 million yuan, year-on-year. 18.47%; Hi-Tech Real Estate's revenue was 915 million yuan, +13.71% year over year, and net profit to mother was 74 million yuan, up 16.25% year on year.

Net operating cash flow improved substantially, mainly due to an increase in sales repayments.

Continued vigorous investment in R&D, innovation and transformation progressed steadily: in 2023, the R&D investment amount was 2.4 billion yuan, accounting for 16.61% of revenue, of which the cost R&D investment was 1.7 billion yuan, and capitalized R&D investment was 700 million yuan. Kinnalizumab, leuprorelin injection emulsion, quintuximab injection, water-soluble progesterone injections, etc., some of the varieties under development have already begun to enter production or phase III clinical trials; kinazumab has completed the main clinical research part of acute gout arthritis phase III, and the main curative effects have reached the expected goals, can effectively relieve patients' pain, and can significantly reduce the risk of recurrence; leuprorelin injection emulsion for children in the phase III clinical study of central precocious puberty has completed the first patient enrollment; the company cooperated with Golden Children in the early stages; Cough pellets in 2024 The inclusion of priority review in February will further speed up the approval of this product.

Profit forecast, valuation and rating: Considering the uncertainty of policies such as growth hormone collection and the possibility of an increase in future R&D investment, the 2024-2025 net profit forecast was lowered to 51.20/5.820 billion yuan (the original forecast was 5.935/6.989 billion yuan, down 14%/17%, respectively), and the new forecast for 2026 was 6.530 billion yuan, up 12.96%/13.67%/12.21%. According to the latest share capital estimate, EPS is 12.66/14.39/16.14 Yuan, corresponding to PE at the current price, is 10/8/7 times, respectively. Considering the company's excellent operating quality and attractive valuation, it maintains a “buy” rating.

Risk warning: risk of growth hormone collection; risk of R&D and approval falling short of expectations.