Incidents:
Tong Ren Tang released its 2023 annual report on March 28: In 2023, the company achieved operating income of 17.861 billion yuan, up 16.19% year on year; net profit to mother was 1,669 billion yuan, up 16.92% year on year; net profit after deducting non-return to mother was 1,657 billion yuan, up 18.32% year on year.
The company achieved revenue of 4.14 billion yuan in a single quarter of 2023, down 7.44% year on year; net profit to mother was 278 million yuan, down 34.47% year on year; net profit after deducting non-return to mother was 279 million yuan, down 31.83% year on year.
Investment highlights:
Looking at the commercial segment with impressive growth in 2023, the company's industrial sector revenue in 2023 was 11.079 billion yuan, up 12.6% year on year; commercial sector revenue was 10.246 billion yuan, up 20.82% year on year. Looking at spin-off companies, the parent company's revenue in 2023 was 4.109 billion yuan, up 11.21% year on year; net profit after deducting investment income was 985 million yuan, up 19.25% year on year. The commercial company's revenue was 10.345 billion yuan, up 20.94% year on year; net profit was 550 million yuan, up 51.97% year on year. The technology company's revenue was 6.773 billion yuan, up 13.04% year on year; net profit was 992 million yuan, down 0.93% year on year. Sinopharm's revenue was 1,377 billion yuan, down 7.94% year on year; net profit was 532 million yuan, down 0.87% year on year.
The volume of the company's second-tier products accelerated the company's industrial revenue of 11.079 billion yuan in 2023, an increase of 12.6% over the previous year; the top five products (Angong Beef Yellow Series, Tongren Beef Huang Qingxin Series, Wuzi Yanzong Series, Liuwei Dihuang Series, and Jinqi Renqi Series) had revenue of 4.953 billion yuan, an increase of 9.97% over the previous year. The overall industrial growth rate surpassed the growth rate of major products, mainly due to the growth of other categories of products (revenue of $3.97 billion, YOY 19.12%) and the growth of heat-cleaning products (revenue of 615 million yuan, YOY 16.1%).
The company's gross margin declined in 2023, and the cost structure improved. The company's gross profit margin in 2023 was 47.29%, down 1.51 percentage points from the previous year; the sales expenses ratio was 19.24%, down 0.74 percentage points from the previous year; the management expenses ratio was 8.53%, down 0.2 percentage points from the previous year; and the R&D expenses ratio was 1.57%, up 0.15 percentage points from the previous year. Revenue from financial expenses was 110 million yuan, an increase of about 100 million yuan over the same period last year.
The company's operating cash flow declined, and the company's operating cash inflow in 2023 was RMB 21.95 billion, an increase of 21.22% over the previous year. Operating cash outflow was $19.225 billion, up 34.37% year over year.
Net operating cash flow was 1,869 billion yuan, a year-on-year decrease of 39.58%. The main reason is an increase in cash for companies to buy goods and receive labor payments as production increases and raw material prices rise.
The profit forecast and investment rating are based on 2023 revenue and profit. We lowered our 2024 and 2025 performance forecasts. The company's revenue for 2024/2025/2026 is 203.23, 228.90, and 26.358 billion yuan, respectively, up 14%/13%/15% year over year; corresponding net profit to mother is 19.24, 22.51, and 2,685 billion yuan, respectively, up 15%/17%/19% year over year; corresponding to PE valuation of 29.22X/24.97X/20.94X. As a “landmark” brand in the field of traditional Chinese medicine, Tong Ren Tang has a strong brand moat. The core products are growing steadily, and they are optimistic about the company's long-term development. Maintain a “buy” rating.
Risk indicates the risk that sales promotion of key products falls short of expectations. There is a risk that the gross profit of the product will decrease due to excessive price increases of raw materials. Risk of store expansion falling short of expectations. Macroeconomic downside risk exceeding expectations. Risk of changes in industry policies.