Incident: The company released its 2023 annual report. For the full year of 2023, the company achieved revenue of 8.222 billion yuan, a year-on-year decrease of 0.33%; net profit to mother was 987 million yuan, an increase of 14.49% over the previous year; and realized net profit after deduction of 952 million yuan, an increase of 23.80% over the previous year. According to estimates, 2023Q4 achieved revenue of 2,429 billion yuan, a year-on-year decrease of 9.57%; net profit to mother of 129 million yuan, a year-on-year decrease of 3.25%; net profit after deducting non-attributable net profit of 110 million yuan, a year-on-year decrease of 8.50%.

The industrial sector grew by double digits, and sales of quick-effect and other major products in the cardiovascular, cardiovascular, and respiratory systems fields increased relatively well. By industry, in 2023, the company's industry and commerce achieved revenue of 4.930 billion yuan and 3,762 billion yuan, respectively; by product, proprietary Chinese medicine, Western medicine, and others achieved revenue of 5.836 billion yuan, 1,697 billion yuan, and 673 million yuan respectively, with year-on-year changes of 3.26%, -4.84%, and -15.47%, respectively. Overall, the company's core industrial sector has achieved double-digit growth. It is expected that products mainly in the cardiovascular and respiratory fields will maintain good growth. Sales of large single-product quick-acting heart saving pills, lung cleansing and anti-inflammatory pills, throat cleansing drops, Angong Niuhuang pills, and Jingwanhong Ointment will all maintain double-digit growth.

Structural optimization increases gross profit margin and maintains a high level of dividend ratio. In 2023, the company achieved a gross profit margin of 44.01%, an increase of 4.08pct over the previous year, mainly due to product structure optimization, that is, an increase in the share of the industry; the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 25.86%, 4.64%, 2.25%, and -0.19%, respectively. The increase in sales expenses was mainly due to a year-on-year increase in market expansion and maintenance costs, 0.39pct, and 0.29pct, respectively. The increase in sales expenses was mainly due to a year-on-year increase in employee remuneration; the increase in management expenses was mainly due to a year-on-year increase in employee remuneration; the increase in management expenses was mainly due to a year-on-year increase in employee remuneration; net investment Revenue was 308 million yuan, up 12.36% year on year, mainly due to increased investment income in joint ventures and joint ventures; under the combined influence, the company's net interest rate for 23 years was 11.78%, up 1.19 pct year on year. Among them, 23Q4's gross margin was 41.96%, up 4.26pct year on year. The sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 27.66%, 5.25%, 4.04%, and 0.02%, respectively. The year-on-year change was 0.69 pct, 1.22 pct, 1.77 pct, and 0.28 pct, respectively; the net interest rate was 5.21%, up 0.48 pct year on year. According to the company's 2023 profit distribution plan, a cash dividend of RMB 12.80 (tax included) will be distributed for every 10 shares, and a total cash dividend of 986 million yuan will be distributed, accounting for 99.91% of net profit returned to mother in '23.

We have been focusing on channel penetration and regional expansion for 24 years to promote a continuous increase in sales of key products. On the basis of consolidating quality, the company will promote key cardiovascular, respiratory, digestive, and premium Chinese pharmaceutical products to achieve further success through extensive regional coverage and strong channel penetration. 1) Differentiated provincial and regional positioning to maintain steady growth in the Beijing, Tianjin and Hebei base regions; focus on accelerating the growth of Guangdong, Lu, Jiangsu, Chuan and Xiang blasting regions; accelerate the cultivation of potential regions in Zhejiang, Shanghai, Liao, E, Yun and Chongqing, and strive to achieve a market size exceeding 100 million yuan in 19 provinces and regions, covering 200 cities; 2) Adhere to “strong brand+strong academics” for the hospital market, with the guideline of “consolidating public power and sinking the county area”; The goal is to build 3 chains over 100 million; focus on increasing the number of stores Produce and promote the Chronic Heart Empowerment Program.

Investment advice: Under brand leadership, the company focuses on products and markets, and continues to do a good job of improving regional coverage and channel penetration. Key categories with quick efficiency as the core are growing well. There is plenty of room for pharmaceutical resource development, cost reduction and efficiency in the future, and performance flexibility can be expected. We expect the company's net profit to be 1,214 billion yuan, 1,476 billion yuan, and 1,726 billion yuan respectively, and EPS of 1.58 yuan, 1.92 yuan, and 2.24 yuan, respectively. The current stock price corresponding to 24-26 valuations is 19, 16, and 13 times, respectively, maintaining a “buy” rating.

Risk warning: Industry policy risks, price fluctuations of Chinese herbal medicines, channel expansion falling short of expectations, sales of key products falling short of expectations, and falling short of expectations in profitability.