Incidents:

The company announced results. Revenue for the full year of 2023 was 2,590 billion yuan, up 10.7% year on year, gross profit of 1.922 billion yuan, up 9.0% year on year, gross margin was 74.2%, and net profit was 785 million yuan, up 14.9% year on year.

Comments and opinions:

The financial performance is impressive, and the structural health trend is improving

The company's core products are highly competitive, driving continuous rapid growth in performance. Since the company went public in 2013, up to 2023, operating income CAGR was 16.3%, and net profit CAGR was 17.8%. With the industry's growth rate slowing down clearly and declining in Shenzhen, it was not easy for the company to achieve such continuous and rapid growth. The company focuses on shareholder returns and has paid more than HK$1.9 billion in dividends. The increase in sales of the company's core pharmaceuticals in '23 drove performance growth, generating revenue of RMB 2,590 billion, up 10.7% year on year, and net profit of RMB 785 million, up 14.9% year on year. The company increased the speed and efficiency of accounts receivable collection. With accounts receivable stocks falling 26.1% year on year in 2022, accounts receivable stocks decreased by 1.4% year on year in '23, while cash and its equivalent increased by 17.9% to reach RMB 3,583 billion. The company's operating efficiency has improved, and the number of turnaround days due has been reduced by 11.3 days to 36.3 days. The overall financial structure is developing healthily.

The competitiveness of core products continues to improve, and the women and children sector accelerates the deployment of CKD. The company achieved sales revenue of 1,741 billion yuan through two core products, Urethine Clear and Yishen Humidifying Granules, an increase of 11.0% year on year. Among them, sales revenue of Yishen Humidified Granules increased 25.5% year on year. Driven by dual-core products, the company has seized market opportunities and successfully covered 38,000 terminal medical institutions and 260,000 pharmacies. Revenue from women's and children's products increased 22.7% year-on-year, with terminal medical institutions covering 17,000 and pharmacies covering 130,000. Yulin Pharmaceutical achieved revenue of 395 million yuan, an increase of 15.1% over the previous year. In the future, it will drive performance growth through deep optimization of branding+specialization. In terms of imaging, due to failure to participate in national volume procurement, revenue from iopanol injections declined in 2023, and the company gradually achieved full product line coverage (nuclear magnetic resonance, CT product line) and accelerated market layout, covering more than 3,300 terminal medical institutions. The market share of gadolinic acid glucamine injections increased from 3rd in the country to 2nd in the country in '22, and the comprehensive clinical value is high.

Build an R&D innovation consortium with rich R&D pipelines

The company focuses on developing nephrology and imaging products around the “1+6” product line. The pipeline is rich. There are 6 innovative drugs and 8 generic drugs. Among them, uretoxin has completed evidence-based medical research and systems biology research, and nephrochemical humidification granules have completed evidence-based medical research and project establishment. Strong cooperation with Pharmaceuticals, Kangde and Beite Pharmaceutical in the development of new nephrology drugs and new imaging products and API support capabilities. The company and the Shenzhen Institute of Advanced Technology of the Chinese Academy of Sciences jointly set up a “Joint Laboratory for Integrated Ultrasound Microbubble Diagnosis and Treatment” to establish a “Nephropathy Traditional Chinese Medicine Research Center” at Hong Kong Invasion University. It is expected that CT contrast agents: ioxanol injection and iopromide injection will be marketed in 2024, and 2 MRI contrast agents will be marketed in 2025.

Our point of view:

The company has an academic marketing team of about 2,000 people, covering 48,000 hospitals and 430,000 pharmacies. With nephrology as its flagship, the company continues to promote the in-depth development of nephrology and imaging product lines. Women's and children's products are rapidly breaking through and expanding the range of bone injury, skin, hepatobiliary, and digestive products. Currently, 67 varieties have entered the 2023 national medical insurance catalogue, and the core products have remarkable clinical value. The prevalence rate of CKD in China is 8.2%, and the awareness rate is only 10.0%. There is huge market space and potential to increase penetration.

The company focuses on shareholder returns. The cumulative dividend payout exceeds HK$1.9 billion. The dividend ratio for 23 years was 42%, and the dividend ratio was 8.02%. The company's performance continues to grow rapidly. PE is only 5.7 times. The value is seriously underestimated, so active attention is recommended.