Core views
Throughout 2023, the company achieved operating income of 39.111 billion yuan, up 7.19% year on year, with industrial revenue growth of 7.58%, driving the company's overall revenue growth; achieving net profit of 4,094 billion yuan, up 36.41% year on year, achieving net profit withheld from mother to mother of 3,764 billion yuan, an increase of 16.45% year on year, and achieved good profit side growth; overall, the company's secondary market securities investment has been disposed of. The performance is in line with our previous expectations. Looking forward to 24 years, as the company's main business focuses on improving quality and efficiency, while making every effort to expand the space for incremental development, focusing on cultivating emerging business units and creating new performance growth points, we are optimistic about the company's ability to continue to grow in the future.
occurrences
The company released its 2023 annual report
On the evening of March 29, the company released its 2023 annual report, achieving total operating revenue of 39.111 billion yuan, up 7.19% year on year; realized net profit of 4,094 billion yuan, up 36.41% year on year; realized net profit deducted from non-return to mother of 3.764 billion yuan, an increase of 16.45% year on year. The performance was in line with previous expectations. According to the annual profit distribution plan, the company plans to distribute a cash dividend of 20.77 yuan (tax included) for every 10 shares, with a total dividend of 3.706 billion yuan, accounting for 90.53% of net profit attributable to mother in 2023.
Brief review
The revenue side continued to grow steadily, and full-year performance was in line with expectations
Throughout 2023, the company achieved operating income of 39.111 billion yuan, up 7.19% year on year, with industrial revenue growth of 7.58%, driving the company's overall revenue growth; achieving net profit of 4,094 billion yuan, up 36.41% year on year, achieving net profit withheld from mother to mother of 3.764 billion yuan, an increase of 16.45% year on year, and achieved good profit side growth; overall, the company's secondary market securities investment has been disposed of. The performance is in line with our previous expectations.
In Q4 2023, the company achieved operating income of 9.423 billion yuan, down 1.57% year on year, and remained stable; achieved net profit to mother of -0.30 billion yuan, down 104.27% year on year; realized net profit after deduction of -90 billion yuan, down 116.99% year on year; short-term profit pressure on the profit side was mainly due to: 1) promotion activities and compensation payable to employees were more concentrated compared to the previous three quarters; 2) The return on investment income from Shanghai Pharmaceutical fell, and the return on changes in the fair value of transactional financial assets after the disposal of secondary market investment securities was completed.
Focus on improving quality and efficiency in the main business to achieve high-quality growth throughout the year
Here's a look at the 2023 divisions:
1) Pharmaceutical Division: Achieved revenue of 6.481 billion yuan, an increase of 8.16% over the previous year; the core products in the core Baiyao series continued to grow well, with a gross margin of more than 70%, of which Yunnan Baiyao aerosol revenue contributed more than 1.7 billion yuan (+15.3%), Yunnan Baiyao cream sales revenue exceeded 900 million yuan, Yunnan Baiyao capsule sales revenue exceeded 600 million yuan, and Yunnan Baiyao Chuangke Patch sales revenue exceeded 300 million yuan. In addition, the company's other brands of traditional Chinese medicine also achieved impressive growth. Among them, Qi Xuekang Oral Liquid achieved sales revenue of 231 million yuan, an increase of 15% year on year, while Pudilan anti-inflammatory tablets, Agastache Zhengqi Water, and Gong Xening capsules achieved year-on-year increases of nearly 16%, 124%, and 47%, respectively.
2) Health Products Division: Achieved revenue of 6.422 billion yuan, an increase of 6.50% over the previous year, and maintained a steady growth trend in main revenue. In the toothpaste sector, the company increased brand exposure in multiple dimensions through a “two-pronged approach” online and offline. The share of the toothpaste market also further increased from 24.4% at the end of '22 to 24.6%, making it the leading position in the market. During the “Double 11" period in 2023, the health products business group achieved number one in several lists. Among them, the official flagship store of Yunnan Baiyao Tmall toothpaste became the first flagship store to break 100 million with the sales performance of a single toothpaste store. In the field of anti-shedding and washing care, the company's Yangyuanqing series sales revenue exceeded 300 million yuan, an increase of 36% over the previous year. During the “Double 11" period, Yangyuanqing ranked first in the Tmall domestic anti-shedding category, while cumulative Douyin sales exceeded 100 million yuan in 2023.
3) Chinese Medicine Resources Division: Achieved external revenue of 17.1 billion yuan, an increase of about 22% over the previous year. Among them, the export revenue of Sanqi Chinese herbal medicines increased sharply by 81% year on year, maintaining a continuous lead in the 37 field. In terms of the natural plant extraction business, the company has refined operations from the procurement side and production side to the sales side. The market share of eucalyptus oil has further increased, and sales of capsaicin have quadrupled, becoming a new business growth point. At the same time, in the context of the general rise in the price of Chinese herbal medicines, the company has guaranteed stable supply and prices of strategic varieties. The increase in the price of the company's raw herbal medicines is significantly lower than the average increase in the price of Chinese herbal medicines in the industry.
4) Provincial pharmaceutical companies (commercial sector): Achieved a main business revenue of 24.49 billion yuan, an increase of 5.63% over the previous year. Despite pressure from the external environment, they still achieved steady growth and effective improvements in operational efficiency. The company's comprehensive order fulfillment rate increased by 7.4%, order response speed increased by 22%, and product delivery speed increased by 19%.
Actively incubate emerging divisions with high dividends to promote long-term health development. In 2023, the company reorganized the emerging business segments, including five major business divisions, including nourishing health products, beauty, medical devices, and Tianyi tea products: among them, the nourishing health products division will integrate major traditional Chinese medicine products such as 37 to develop the nourishing health products competition; the beauty division will focus on breaking through functional skincare products and launch a beauty brand with Yunnan Baiyao characteristics; the medical device division will focus on a professional functional circuit focusing on orthopedics and injury care; while Tianyi Tea Division will focus on a professional functional circuit focusing on orthopedics and injury care; the Tianyi Tea Division will focus on a professional functional circuit focusing on orthopedic and injury care. Deeply involved in upgrading the tea industry, exploring tea derivatives, and Innovation; Overall, the company's emerging divisions will create new performance growth points through a “comprehensive solution” business model, and it is expected that the next few years will gradually bring incremental contributions to the company's performance.
In addition, in the 30 years since its listing, while continuously improving its internal quality, the company has continued to enhance its dividend capacity and level of dividends, and achieve 30 consecutive years of dividends to shareholders. As of 2022, the cumulative amount of cash dividends has exceeded 20.7 billion yuan. According to the 2023 profit distribution plan, the company plans to pay a dividend of 20.77 yuan for every 10 shares, with a total dividend of 3.706 billion yuan, accounting for 90.53% of net profit returned to mother in 2023. The company will create rich value returns for investors through steady operation and continuous dividends, which is expected to promote the company's long-term healthy development and continue to boost market confidence.
Looking forward to 24 years: Continuously consolidating the four main businesses and fully expanding incremental development space Looking ahead to 24 years. In terms of the four main businesses, the pharmaceutical division is expected to maintain a steady growth trend driven by the core Yunnan Baiyao series and branded traditional Chinese medicines; the health products division is expected to achieve healthy growth driven by oral care and anti-hair loss care series, while the company continues to expand new channels and technological innovation to drive product upgrades. It is expected to drive the company's continuous release of health consumer products in the next few years; as the company gradually builds a long-term stable, high-quality and traceable Yunnan herbal medicine supply chain, Continuing to promote the brand Chinese herbal medicine project, the Chinese Herbal Medicine Resources Division is expected to maintain a good growth trend driven by branded herbal medicines; on the provincial pharmaceutical company side, the company will continue to integrate upstream and downstream resources in the supply chain, continuously explore new profit models, accelerate process, digitization and intelligent construction, and continuously improve supply chain service capabilities, which is expected to drive the company's distribution business to continue to recover throughout the year. In addition, in the emerging business segment, the company will continue to incubate divisions such as health supplements, beauty, medical devices, and Tianyi tea products, and is expected to gradually make an incremental contribution to the company's performance in the next few years.
Overall, as the company's main business focuses on improving quality and efficiency, while making every effort to expand the space for incremental development, focusing on cultivating emerging business units and creating new performance growth points, we are optimistic about the company's ability to continue to grow in the future.
The quality of operations remains healthy, and the rest of the financial indicators are basically normal
In 2023, the company's comprehensive gross margin was 26.51%, up 0.18 percentage points year on year, and remained stable; the sales expense ratio was 12.76%, up 1.35pp year on year, mainly due to the increase in sales scale and the company's investment in promotion, etc.; the management expense ratio was 2.71%, up 0.42pp year on year, mainly due to the increase in employee remuneration over the same period last year; the R&D expense ratio was 0.86%, a decrease of 0.06pp year on year, which basically remained stable; the net cash flow from operating activities increased 9.14% year on year, mainly Due to the increase in cash received from sales of goods and services in the current period compared to the same period of the previous year; net cash flow from investment activities increased 108.21% year on year, mainly due to a decrease in cash payments during the current period compared to the same period of the previous year. Other financial indicators are generally normal.
Profit Forecasts and Investment Ratings
We expect the company to achieve operating income of 41,951 billion yuan, 45.122 billion yuan and 48.676 billion yuan respectively, and net profit to mother of 4.531 billion yuan, 5,019 billion yuan and 5.578 billion yuan respectively, up 10.7%, 10.8% and 11.1% year-on-year respectively, equivalent to EPS of 2.52 yuan/share, 2.79 yuan/share and 3.10 yuan/share, respectively. The corresponding PE is 20.1x, 18.2x and 16.4x respectively, maintaining the “buy” rating.