Incident: 1) Taiji Group released its 2023 annual report. In 2023, the company achieved operating income of 15.62 billion yuan, up 10.58% year on year; realized net profit of 822 million yuan, up 131.99% year on year; realized net profit withheld from mother of 774 million yuan, up 111.35% year on year; net operating cash flow was 672 million yuan, down 62.29% year on year; in 2023, the company's EPS was 1.48 yuan/share, up 131.25% year on year. 2) Taiji Group announced that the company plans to distribute a total of 167 million yuan in cash dividends (tax included), and the company's cash dividend ratio for 2023 is 20.32%.
Comment:
Revenue from core products is growing rapidly. According to the company's announcement, in the fourth quarter of 2023, the company achieved revenue of 3.44 billion yuan (-1.57%) and net profit to mother of 64 million yuan (-35.73% year over year).
The increase in net profit in 2023 was mainly due to the increase in the company's sales revenue and increase in gross margin, and the overall performance of the company's performance was good. According to the annual report, from the revenue side, the company's pharmaceutical industry segment had 2023 revenue of 10.388 billion yuan (YoY +19.40%), the pharmaceutical business sector had 2023 revenue of 7.726 billion yuan (-3.31% YoY), and the Chinese herbal medicine resources sector had 2023 revenue of 1,017 billion yuan (+118.71% YoY). Taiji Agastache Zhengqi Oral Liquid achieved sales revenue of 2,271 million yuan (+45% year over year), and emergency syrup achieved sales revenue of 881 million yuan (+67% year over year). The company's overall gross sales margin and net margin increased year-on-year in 2023. On the cost side, in 2023, the company's management expenses rate and financial expense ratio decreased year on year, sales expenses rate and R&D expense ratio increased year on year, and overall cost control was relatively steady.
Continue to promote research and development of new drugs, and a team of academicians leads the secondary development of large varieties. According to the company's annual report, in 2023, the company received 9 additional approvals for generic drug consistency evaluations throughout the year. Yibao Shiling was included in the national “Chemical Generic Drug Reference Formulation Catalogue (65th Batch)”, setting a precedent for domestic drugs to become reference formulations in the form of original research and localization. Thirty-one key research and development projects have been carried out throughout the year, and major progress has been made in key drug research projects such as new biopharmaceuticals projects, innovative drugs, classic recipes, narcotics, and APIs. Twenty-one new drug projects, mainly Class 1 innovative drugs, were added throughout the year. A team of academicians led top-level design for the second development of major varieties and potential varieties such as Taiji Agastache Zhengqi Oral Liquid and Tongtian Oral Liquid. We believe that the company's investment in drug research and development and investment in secondary development of already marketed varieties is expected to bring new performance growth points.
Promote digital transformation and accelerate the construction of “a digital tai chi” in 2024. According to the 2024 business plan in the annual report, the company will focus on digital transformation, build a modern pharmaceutical industry cluster, develop a second growth curve, build a Taiji commercial civilization, and accelerate the construction of “a digital tai chi”.
In terms of channels, deepen the integration and collaboration of 1, 2, and 3 terminals, focus on the two main products of Aeji Agastache Zhengqi Oral Liquid and Emergency Syrup, and improve the online product layout; in the commercial sector, continue to improve the collection process and promote first-level regional agency rights to collect varieties, exclusive varieties and specialty varieties. The company expects to add at least 50 new first-level distribution accounts with key suppliers in 2024, using the influence of the two major brands of “Taiji” and “Tongjun Ge”. The company expects to add no less than 100 new direct franchised pharmacies; in the traditional Chinese medicine sector, expand the operation of Chinese herbal medicines Scale, speed up the construction of planting bases and industrial parks It will accelerate the increase in Chinese medicine tablets and promote the pace of industrialization of Cordyceps; in addition, in 2024, the company will launch production capacity construction work at the four major intelligent manufacturing centers, continue to deepen the construction of scientific research platforms, and accelerate the transformation of scientific research results.
Profit forecast and investment rating: We expect Taiji Group's 2024-2026 revenue to be 178.88/207.88/24.157 billion yuan, respectively, and net profit to mother of 10.81/13.36/1.110 billion yuan, respectively. The corresponding PE is 17.46/14.13/11.72X, respectively, maintaining the “gain” rating.
Risk factors: policy and regulatory risk, quality risk, market risk, cost risk, R&D risk.