Matters:
The company released its 2023 annual report, achieving revenue of 7.703 billion yuan (-6.99%), net profit of 445 million yuan (+16.05%), and net profit of 335 million yuan (+33.45%) after deduction. The company's performance was in line with previous expectations. The 2023 profit distribution plan is: 2.0 yuan (tax included) for every 10 shares.
The company also announced the 24th board resolution of the 10th session, which passed the “Proposal on the Company's Strategic Plan (2024-2028)”.
Ping An's point of view:
If various asset impairment preparations are added back, the company's performance is in line with expectations. The company's revenue declined in 2023, mainly due to business structure optimization and fewer foreign aid businesses compared to the previous year. This year, the company's pharmaceutical business sector generated revenue of 3.322 billion yuan (-7.40%), and the injection and oral series revenue in the industrial sector was 1,059 billion yuan (+11.09%) and 3,055 billion yuan (+5.58%) respectively. The share of the industry continued to increase. The impact of the impairment of various assets calculated by the company in 2023 on total profit was -119 million yuan. If this factor is excluded, the net profit for 2023 is in line with previous expectations. The company's gross margin and net margin during the reporting period were 44.82% (+3.30 pp) and 5.90% (+1.25pp), respectively. In addition to the sales expense rate, the cost rate remained stable during the period. The sales expense ratio was 31.58% (+2.19 pp). The increase was mainly related to changes in the business structure.
The business restructuring has basically been completed, and the new five-year plan lays the foundation for high growth. In 2023, the company initiated marketing organization reforms and established the three core business divisions “KPC1951, Kunming Traditional Chinese Medicine 1381, 777”. Among them, KPC1951 comprehensively focuses on the field of geriatric health, digging deeper into the health needs of people with silver hair; Kunming Traditional Chinese Medicine 1381 focuses on building a leader in fine Chinese medicines; and the 777 division focuses on the third-phase industrial chain and is committed to the field of chronic disease management and geriatric health. At the same time, the company's board of directors approved a five-year strategic plan from 2024 to 2028, proposing to double revenue and reach 10 billion yuan in industrial revenue by the end of 2028 through endogenous and epitaxial expansion methods, and is committed to becoming the first stock in the Yinfa Health Industry.
Revenue guidance is compounded by improved profitability, and the company can be expected to grow at a high rate and maintain a “recommended” rating. Assuming that the industry revenue is in terms of injections and oral products, the total in 2023 will be 4.114 billion yuan. If it reaches 10 billion in 2028, the 5-year CAGR will be 19.44%. Considering the scale effect combined with the brand effect, the company's profitability is expected to increase accordingly, and the net profit growth rate is expected to be faster than revenue growth. Considering that the company's investment in brand building is expected to increase in 2024, we adjusted the 2024-2025 net profit forecast to 656 million yuan or 831 million yuan (the original forecast was 688 million yuan and 829 million yuan), and the company's net profit is expected to be 1,037 million yuan in 2026.
The current stock price is 24 times PE in 2024, maintaining the “recommended” rating.
Risk warning. 1) Price risk of injection products: Currently, injections mainly include hemosideron and hemarabine, all of which have involved provincial collection, and there is a possibility that prices will drop further.
2) Brand building falls short of expectations: The company focuses on the three core divisions to build the first stock in Yinfa Economy. Brand image building is less likely than expected. 3) Epitaxial mergers and acquisitions fall short of expectations: In addition to endogenous mergers and acquisitions, the company also needs to rely on epitaxial mergers and acquisitions to achieve the 2028 target. The progress of epitaxial mergers and acquisitions falls short of expectations.