We forecast 2023A-26E revenue/net profit CAGR of 6%/9%.
Core products maintained rapid growth in 2023, and net interest rates on health products were under pressure.
The holding rating was maintained, and the DCF target price was lowered to $54.20.
The 2023 results were in line with expectations, with a dividend rate of over 90%: Yunnan Baiyao released its annual report. In 2023, it achieved revenue of 39.111 billion yuan, an increase of 7% over the previous year; achieved net profit of 4,094 billion yuan, an increase of 36% over the previous year. The main reason why the net profit growth rate greatly exceeded the revenue growth rate was due to the low base in 2022. Of these, 4Q23 achieved revenue of 9.422 billion yuan, a year-on-year decrease of 2%, and realized a net loss of 30 million yuan to mother, a decrease of 105% over the previous year. Mainly due to high cost investment in the fourth quarter and a decline in investment income/fair value return. Operating cash flow in 2023 was $3,503 million (+9% YoY). The company paid 2,077 yuan per share in 2023, with a total dividend of 3.706 billion yuan, and a dividend ratio of 91%. The dividend ratio is 3.8%.
Core products have maintained rapid growth, and net profit margins of health products are under pressure: 2023, 1) The pharmaceutical division achieved revenue of 6.481 billion yuan (+8% year over year). The revenue of the core product, Yunnan Baiyao Aerosol, exceeded 1.7 billion yuan, an increase of 15% over the previous year. Due to the increase in demand for cold products before and after epidemic control was liberalized, the revenue of Pudilan anti-inflammatory tablets and Agastache Zhengqi Water all exceeded 100 million, an increase of 16% and 124% over the previous year. Revenue of Gong Xuening (a gynecological anti-inflammatory product) increased 47% year over year, and Qi Xuekang Oral Liquid (plant supplement product) achieved revenue of 231 million yuan, an increase of 15% year over year. 2) The Health Products Division achieved revenue of 6.422 billion yuan (+7% YoY).
The market share of toothpaste increased to 24.6% in 2023 (24.4% at the end of 2022), continuing to rank first in the country. Yang Yuanqing focuses on controlling oil and preventing evaporation, with revenue exceeding 300 million yuan in 2023 (+36% year over year). However, the net profit of health product subsidiaries fell 7% year on year to 2,022 billion yuan, and net interest rate fell 4.7 ppts year on year to 31.5% year on year. We believe that price competition and sales promotion expenses may increase due to increased market competition. 3) The Chinese Medicine Resources Division achieved revenue of 17.1 billion yuan (+22% year over year). Sales of the strategic product 37 were +81% year-on-year. 4) Yunnan Pharmaceutical Company (Pharmaceutical Distribution) achieved revenue of 24.490 billion yuan (+6% year over year).
New business performance remains to be seen: Emerging business segments were restructured during the reporting period, including the Health Products Division, the Skin Beauty Division, the Medical Devices Division, and Tianyi Tea Division. The Nourishing Health Products Division is committed to seizing the minds of consumers, integrating major traditional Chinese medicine products such as 37, and invigorating the nourishing health products race; the Beauty Division is committed to breaking through functional skincare products, based on natural herbal plants, and launching a beauty brand unique to Yunnan Baiyao; the Medical Devices Division is committed to a professional functional circuit focusing on orthopedics and injury care; Tianyi Tea Division is committed to deepening the upgrading of the tea industry and exploring and innovating tea derivatives.
Maintain the “hold” rating and raise the target price of DCF (WACC: 8.4%) to $54.20. Our target price is 21x the 2024 P/E, which is equal to the average of comparable companies. We believe that Yunnan Baiyao lacks a short-term stock price catalyst, and the valuation should be close to the average of comparable companies.
Risk warning: Downside risks: 1) Risk of fluctuations in the supply and price of APIs; 2) Increased competition in the health industry; 3) Uncertainty about changes in the fair value of financial assets and investment returns. Upside risks: 1) The growth rate of health products exceeds expectations; 2) the expansion rate is higher than expected; 3) the pace of product innovation is accelerating.