Incidents:
On March 29, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 39.111 billion yuan, a year-on-year increase of 7.19%, achieved net profit of 4,094 billion yuan, a year-on-year increase of 36.41%, deducted non-net profit of 3.64 billion yuan, an increase of 16.45% over the previous year, and achieved net cash flow from operating activities of 3,503 billion yuan, an increase of 9.14% over the previous year.
Performance grew steadily, and the four major business groups developed in a balanced manner.
The company's main business achieved steady growth in 2023. Looking at the breakdown of the industry groups: 1) In 2023, the company's pharmaceutical business group achieved revenue of 6.481 billion yuan, an increase of 8.16% over the previous year. Among them, the core products of the Baiyao series maintained a good growth trend, with gross margin of 70.6%, while other brands of traditional Chinese medicine products achieved rapid growth; 2) In 2023, the company's health products business group achieved revenue of 6.422 billion yuan, an increase of 6.50% over the previous year, focusing on oral care, anti-depilation care, etc., and Yunnan Baiyao toothpaste continued to maintain its leading position in the market. The potential variety Yang Yuanqing achieved a new breakthrough; 3) In 2023, the company's traditional Chinese medicine resource business group achieved external revenue of 1.71 billion yuan, with a year-on-year increase of about 22%, of which the export revenue of Sanqi Chinese herbal medicines increased sharply by 81%; 4) In 2023, the provincial pharmaceutical company achieved a main business revenue of 24.49 billion yuan, an increase of 5.63% year on year, a 7.4% increase in order response speed, and a 19% increase in product delivery speed. In addition, the company focuses on development strategies and actively explores and incubates emerging business divisions (BU) such as the Nourishing Health Products Division, the Skin Beauty Division, the Medical Device Division, and Tianyi Tea Products Division according to actual business needs. We believe that the balanced development of the company's four major business groups is the foundation for achieving steady growth in the company's performance, and the incubation of emerging divisions opens up room for imagination for future long-term development.
The core products in the Baiyao series have maintained their leading position in the market, and other types of traditional Chinese medicines are growing rapidly.
In 2023, the company's core products achieved steady growth: Yunnan Baiyao aerosol sales revenue contributed more than 1.7 billion yuan, up 15.27% year on year; Yunnan Baiyao cream sales revenue exceeded 900 million yuan; Yunnan Baiyao capsule sales revenue exceeded 600 million yuan; Yunnan Baiyao (powder) and Yunnan Baiyao band-aid sales revenue exceeded 300 million yuan. The company's core products continued to maintain a leading position in the market in 2023. The annual report shows that, according to the CCK System, Yunnan Baiyao (powder) occupied 14.5% of the retail market share of proprietary Chinese medicines for musculoskeletal system bone injuries in 2023; Yunnan Baiyao aerosols had a retail market share of 91.0% of proprietary Chinese aerosols for musculoskeletal system joint and muscle pain topical use, ranking first in the market; Yunnan Baiyao band-aids accounted for 6.5% of the retail market share of topical hemostatic agents (containing drugs) Ranked first in the market. In 2023, the company's other types of traditional Chinese medicines grew significantly: sales revenue of Pudilan anti-inflammatory tablets and Agastache Zhengqi Water all reached over 100 million yuan, with year-on-year increases of nearly 16% and W 124% respectively; sales revenue of Gong She-ning capsules rose 47% year on year; and Qi Xuekang oral liquid achieved sales revenue of 231 million yuan, an increase of 15% year on year. We believe that the market leadership position for the core products of the Baiyao series is stable, that other types of traditional Chinese medicine have brought new growth engines, and that the company's pharmaceutical division is expected to maintain a good growth trend.
Yunnan Baiyao toothpaste maintains market leadership, and the potential variety Yang Yuanqing has achieved new breakthroughs.
The company's health products business group achieved steady growth in 2023. Among them, Yunnan Baiyao toothpaste continues to maintain its leading position in the market, and other daily chemical products have great potential for growth. According to the annual report, the domestic market share of Yunnan Baiyao toothpaste reached 24.60% in 2023 (data source: Nielsen retail research data YTD2312), and continued to maintain the number one market share. During the “Double 11" period in 2023, the sales performance of the official flagship store of Yunnan Baiyao Tmall toothpaste broke 100 million for the first time, becoming the first flagship store to break 100 million with a single toothpaste product. It also won the first record of the most popular toothpaste in Douyin. In 2023, Yang Yuanqing, a potential product in the company's health products business group, achieved a new breakthrough, with annual sales revenue exceeding 300 million yuan, an increase of 36% over the previous year. During the “Double 11" period, Yang Yuanqing ranked first in the Tmall anti-aging category, and Douyin's cumulative sales in 2023 exceeded 100 million yuan. The core single product, the oil control and anti-loss shampoo kit, topped the Douyin Mall anti-hair loss shampoo boom list and number one in the Pinduoduo platform. We believe that the market share of Baiyao toothpaste in Yunnan is steadily increasing, and with new breakthroughs in potential varieties represented by Yang Yuanqing, the company's health products business group is expected to maintain steady growth.
Continue to maintain a high percentage of cash dividends and high-quality assets with high dividends.
The company attaches great importance to cash dividends. According to Wind statistics, since the launch of Yunnan Baiyao (1993-2022), the cumulative cash dividend reached 20.751 billion yuan. Among them, the dividend amount ranked first among all listed pharmaceutical companies for 4 consecutive years in 2017-2020, becoming a model for high dividends.
Since 2021, due to losses in the company's foreign investment, there have been large fair value changes at the reporting level, and the company's net profit and cash dividend amount have declined simultaneously. Since 2023, the company has focused on its main business, and the amount of cash dividends has increased dramatically. The annual report shows that the company's 2023 dividend plan is 20.77 yuan for every 10 shares, and the total cash dividend reached 3.76 billion yuan, accounting for 90.53% of net profit returned to mother in 2023. Based on the closing price on March 29, 2024, the company's dividend rate reached 4.09%.
Investment advice:
Based on the company's business positioning and development plan, we assume that the company's pharmaceutical sales revenue growth rates from 2024 to 2026 will be 8%, 8%, and 8%, respectively, the health and daily chemical revenue growth rates will be 5%, 5%, and 5%, respectively, the revenue growth rates of traditional Chinese medicine resources will be 12%, 12%, and the drug distribution revenue growth rates will be 6%, 6%, and 6%, respectively. Based on the above assumptions, we expect the company's revenue from 2024 to 2026 to be 41,617 billion yuan, 44.293 billion yuan, and 47.149 billion yuan, respectively, and net profit to mother of 4.463 billion yuan, 4.883 billion yuan, and 5.271 billion yuan respectively. Considering the nature of the company's high-dividend assets, referring to the valuation levels of comparable companies such as Donga Ejiao and Jiangzhong Pharmaceutical, the company was given a PE valuation of 25 times in 2024, corresponding to a target price of 62.00 yuan for 6 months, and an investment rating of buy-A.
Risk warning: risk of price fluctuations of Chinese herbal medicines, risk of changes in cash dividend policies, risk of pressure on the macro-consumption environment.