occurrences

The company released its annual report and achieved revenue of 4.39 billion yuan in 2023, +13.00% year over year; realized net profit of 708 million yuan, +18.40% year over year, net profit of 704 million yuan after deducting non-return to mother net profit of 704 million yuan, +38.97% year on year.

Incident reviews

Strong profit side performance, further strengthening cost control

Performance has grown rapidly, and profitability continues to improve. Looking at a single quarter, 2023Q4 achieved revenue of 1.25 billion yuan, +23.67% year over year, and strong revenue side momentum; achieved net profit of 119 million yuan, +30.39% year over year; achieved net profit deducted from non-return to mother of 145 million yuan, +156.01% year over year. The rapid growth on the profit side was mainly due to continuous progress in cost reduction and efficiency.

Implementing the new development concept, the cost control results have been remarkable. In 2023, the company promoted the transformation and upgrading of production lines, improving capacity utilization efficiency, optimizing production processes, and reducing procurement costs. The gross margin of the main business in 2023 was 65.28%, +0.35pct compared to the previous year. The cost rate for the period was 43.56%, -2.41 pct year over year.

Among them, the sales expense ratio was 37.09%, -1.77pct year on year; the management expense ratio was 4.80%, -0.5pct year on year; and the financial expense ratio was -1.37%, -0.73pct year on year. Operating cash flow of $1,036 million was basically the same as the previous year. Overall, the company successfully controlled all expenses and made progress in cost management.

In terms of cash dividends, according to the company's 2023 profit distribution plan, the company distributed a total of 441 million yuan at the end of 2023, 7 yuan (tax included) for every 10 shares, accounting for 62.20% of net profit attributable to mother; at the same time, in November 2023, the company completed profit distribution for the first three quarters of 2023, with a total distribution amount of 388 million yuan; therefore, the total amount of cash dividends for 2023 was 818 million yuan, accounting for 115.52% of net profit to mother.

Core categories continue to grow, and Big Health has become a new engine for development

The four core categories all maintained a growth trend and continued to play the role of ballast stones for growth. The company achieved revenue of 3,050 billion yuan in non-prescription drugs in '23, +16.46% year over year, and gross margin of the sector was 71.70%, +1.63pct year on year. The revenue scale of stomach health tablets, the core single product in the spleen and stomach category, returned to 1.1 billion yuan, with sales volume +6.06% year-on-year, continuing to consolidate its leading position in digestive aid. The revenue scale of lactobacillus tablets and bifidobacteria trifecta enteric capsules (Befeida) in the intestinal category both exceeded 500 million yuan. Among them, sales of lactobacillins tablets were +18.89% year-on-year, and Befeida's sales volume was +37.59% year-on-year. Throat cough and supplement categories were developed and extended to create a second growth curve. Compound Cao Coral tablets continued to awaken the brand. In 2023, sales volume was 3.59 million boxes, with a revenue growth rate of over 20%, and the total revenue with Compound Fresh Bamboo Liquid exceeded 300 million yuan; the revenue scale of multi-dimensional element tablets was stable, further consolidating the market share and terminal recommendation rate.

In '23, the company's health business achieved revenue of 650 million yuan, +49.96% year-on-year, becoming a new engine for business growth. The revenue scale of the Shenlingcao series products is over 100 million, continuing the steady growth trend; Chuyuan series products continue to enrich the business layout, with a revenue growth rate of about 40%; gastrointestinal health probiotics series products and liver tablets for liver health have achieved breakthrough growth and are expected to become a new business of over 100 million dollars.

In '23, the company's prescription drug business achieved revenue of 664 million yuan. The in-hospital and primary care markets continue to promote business compliance development, actively participate in national and provincial procurement, and accelerate drug consistency evaluation; the out-of-hospital market leverages the “Jiangzhong” brand advantage to broaden the category circuit, build a prototype for products characteristic of chronic diseases, and explore new marketing models.

Innovation drives technological transformation. Phase II equity incentives show confidence

R&D investment continues to increase, and intelligent manufacturing has achieved remarkable results. In 2023, the company's R&D expenditure rate was 3.04%, +0.47pct compared to the previous year, mainly due to the company's continuous increase in R&D investment layout and continuous promotion of innovative research and development. The company attracted outstanding talents and innovative drug teams in the industry, strengthened cooperation with research institutes and universities in Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong, Hong Kong and Macao, etc., focused on research and development in gastrointestinal fields, and obtained registration certificates for two special medical formulations. At the same time, promote intelligent manufacturing, optimize production line layout, improve the efficiency of production capacity utilization, and resolve the conflict between increasing production capacity and market supply and demand.

The launch of the second phase equity plan shows confidence in long-term development. The company disclosed the “Second Restricted Stock Incentive Plan” in January 2024. Based on the initial equity incentive implementation experience, the company plans to increase the number of employees covered by the second phase of the equity incentive plan to no more than 213, further extend it to researchers and core grassroots employees, and fully stimulate organizational and talent vitality.

Investment advice

According to the company's latest disclosure of the 23 annual report data, the company's 2023 performance is basically in line with expectations. The business performance of Jiangzhong Pharmaceutical owners is growing steadily, and cost reduction and efficiency are gradually improving. We expect the company's 2024-2026 revenue to be 50.69/59.08/6.882 billion yuan respectively, up 15.5%/16.6%/16.5% year-on-year, respectively, and net profit to mother of 8.32/9.73/11.32 billion yuan, respectively, with corresponding valuations of 18X/16X /13X. We are optimistic about the company's long-term future development and maintain a “buy” rating.

Risk warning

Risk of drug price reduction; risk of fluctuating raw material prices; risk of increased market competition; risk of product promotion falling short of expectations.