Incident reviews
On March 28, the company released its 2023 annual report: 2023 revenue of 15.623 billion yuan (+10.58%), net profit to mother of 822 million yuan (+131.99%), net non-net profit of 774 million yuan (+111.35%), and net operating cash flow of 672 million yuan (-62.29%). 2023Q4 revenue was $3.44 billion (-1.57%), net profit attributable to mother of $64 million (-35.73%), after deducting non-net profit of $59 million (+34.96%).
Traditional Chinese medicine has maintained rapid growth, and expansion outside the province has achieved remarkable results
In 2023, the company's pharmaceutical industry revenue was 10.388 billion yuan (+19.4%), including modern traditional Chinese medicine of 6.604 billion yuan (+31.64%, revenue accounting for 63.6%), chemicals of 3.784 billion yuan (+2.72%); pharmaceutical commercial revenue of 7.726 billion yuan (-3.31%); and Chinese herbal medicine resource revenue of 1,017 billion yuan (+118.6%). Looking at the subregion, revenue in the southwest region of the company was basically flat, with revenue share falling from 60% to 53%. The revenue growth rate in regions other than Southwest China was over 10%, with East China +29.3% (revenue accounting for nearly 20%)/North China and South China growing at around 20% (revenue accounting for nearly 8%)/Central China +36.7% (revenue accounting for nearly 5%) /Northwest China +49.6% (revenue accounting for nearly 3%).
Fee control results continue to show, and profitability is improving steadily
The gross margin of all businesses increased: gross profit margin of 48.6% (+3.19pct) in 2023, including the gross profit margin of the pharmaceutical industry 64.74% (+0.62pct), the pharmaceutical commercial gross profit margin 9.6% (+0.15pct), and the gross profit margin of Chinese herbal medicine resources 7.9% (+0.11pct). The four major rate controls are better: Sales/ Management/ Financial/ R&D expenses in 2023 were 33.45% (+0.53pct)/4.74% (-0.61pct)/0.94% (-0.34pct)/1.5% (+0.72pct), respectively. The increase in sales expenses ratio is mainly due to the increase in the pharmaceutical industry's share of revenue, and changes in the sales structure. The net interest rate returned to the mother in 2023 was 5.26% (+2.75pct), after deducting the non-net interest rate of 4.96% (+2.36pct); 2023Q4 increased the deducted non-net interest rate by 0.47pct to 1.72% in the face of a 1.6% year-on-year decline in revenue, further showing the effectiveness of the company's fee control.
Contract liabilities increased significantly compared to normal years. Inventory is expected to be at a reasonable level. The contract debt at the end of 2023 is 516 million yuan. Considering that shipments at the end of 2022 were unparalleled due to the pandemic, a significant increase of 32/370 million yuan compared to 2020-2021, and the number of inventory turnover days increased slightly from 2022 (104 days) and a significant decrease from 2021 (125 days), we expect product marketing to remain in a good state. The company's accounts receivable turnaround days continued to decline (46 days), reaching its lowest level in nearly 6 years.
2024 Development Plan: Digital Transformation of the Entire Industry Chain
Pharmaceutical industry: Promote sales of strategic main products, increase category development, more accurate market strategies, and increase e-commerce cooperation.
Pharmaceutical business: Deepen integration and collaboration to improve profit levels; expand businesses such as direct-run pharmacies, SPD, and specialty traditional Chinese medicine clinics to seek new growth points.
Chinese herbal medicine resources: Expand the scale of planting bases, build additional herbal medicine centers to accelerate the uptake of Chinese herbal medicine tablets, and promote the industrialization of Cordyceps sinensis.
Profit forecasting
We expect the company's revenue for 2024-2026 to be 175.75/197.37/22.106 billion yuan, respectively, net profit to mother of 10.87/13.92/1,635 billion yuan, EPS of 1.95/2.50/2.94 yuan/share, respectively. The current closing price corresponds to PE 17.0/13.3/11.3 times, respectively, for the first time covered, giving a “buy” rating.
Risk warning:
Sales growth of large products (categories) fell short of expectations; the results of improving quality and efficiency fell short of expectations.