Incidents:
The company released its 2023 annual report, achieving full year operating income of 8.222 billion yuan (YoY -0.33%), net profit to mother of 987 million yuan (YoY +14.49%), and net profit of 952 million yuan (YoY +23.80%). With 2023Q4, the company achieved operating income of 2,429 billion yuan (YoY -9.57%), net profit attributable to mother of 129 million yuan (YoY -3.25%), and net profit not attributable to mother of 110 million yuan (YoY -8.50%).
Comment:
1. The 2023 performance exceeded expectations, and quick-acting relief pills led the coverage and volume of main product terminals. As a national secret product, quick-acting heart saving pills surpassed 2 billion yuan in sales for the first time in 2023, an increase of more than 30% over the previous year. The leading mental health product line is the company's number one product matrix. Relying on its strong brand strength and product strength, the company focuses on the “Three Core and Nine Wings” product strategy and continues to promote terminal coverage. Quick-acting Heart Saving Pills and Jingwanhong Ointment have covered 500,000 pharmacies and 100,000 medical terminals; the coverage rate of second-line varieties of anti-throat pills, lung cleansing and anti-inflammatory pills, throat cleansing granules, gastrointestinal relief pills, etc. has achieved effective penetration. The company's annual industrial revenue was 4.930 billion yuan, maintaining double-digit year-on-year growth and reaching a new high. Anti-throat drip pills (sales doubled for two consecutive years), Yasumiya beef yellow pills, Jingwanhong Ointment, and lung cleansing and anti-inflammatory pills have entered the 200 million product lineup, and the results of deepening the main product have been remarkable.
2. Adhere to innovation and academic leadership, and expand the traditional Chinese medicine industry business horizontally. The company attaches importance to improving product strength, and has carried out in-depth clinical evidence-based research such as quick-acting heart-saving pills, paroqi capsules, etc., and substituting endangered medicinal herbs for lung cleansing and anti-inflammatory pills. Ten new varieties have been added to 20 national, provincial and municipal guidelines and consensus, and research on classic famous recipes has also achieved certain results. In terms of other industries, the company built a 4,000-acre planting base for chuanyu, honeysuckle, and schisandra chinensis in 2023; set up a “Da Rentang Pharmacy” boutique Chinese medicine chain; laid out a large health and functional category business. Two health foods were approved, and a series of new health products with the same medicinal origin were launched; Internet hospitals have also entered the license approval stage. Furthermore, in 2023, the company's revenue in the international market exceeded 40 million yuan (+25%), 3 new varieties were approved for registration of traditional Chinese medicine, and 2 new varieties were marketed for sale.
Profit forecast: We expect the company's 2024-2026 revenue to be 95.77, 108.34, and 12.272 billion yuan, respectively, with year-on-year growth rates of 16.48%, 13.13%, and 13.26% respectively, and net profit to mother of 12.38, 15.44, and 1,668 billion yuan, respectively. The year-on-year growth rates are 25.48%, 24.68%, and 8.06%, respectively, corresponding to the current stock price PE, which is 17, 14, and 13 times, respectively, maintaining the “recommended” rating.
Risk warning: risk of price reduction in product collection, risk of changes in industry policy, risk of raw material price fluctuations, risk of new product development falling short of expectations, risk of market development and brand building falling short of expectations, risk of falling short of expectations in core product sales, product quality risk, etc.