Incident: The company released its 2023 annual report, achieving operating income of 15.623 billion yuan (+10.58%), net profit to mother of 822 million yuan (+131.99%), and net profit not attributable to mother of 7.74 (+111.35%). On a quarterly basis, Q4 achieved operating income of 3.44 billion yuan (-1.57%), net profit to mother of 64 million yuan (-35.37%), and net profit of non-return to mother of 59 million yuan (+19.96%).
The industrial sector achieved double-digit growth, and modern traditional Chinese medicine grew by more than 30%. In 2023, the pharmaceutical industry achieved revenue of 10.388 billion yuan (+19.40%), of which modern traditional Chinese medicine achieved revenue of 6.604 billion yuan (+31.64%) and chemicals achieved revenue of 3.784 billion yuan (+2.72%). The core varieties with significant revenue growth include: Agastache Zhengqi Liquid achieved revenue of 2,271 million yuan (+45%), emergency syrup achieved revenue of 881 million yuan (+67%), Tongtian Oral Liquid achieved revenue of 316 million yuan (+10%), sinusitis oral liquid achieved revenue of 261 million yuan (+22%), and Hash Connect achieved revenue of 163 million yuan (+55%). The company's main product strategy continues to gain strength, digging deeper into the value of existing OTC products, such as extending the application scenarios of agastache liquid to remove moisture, and optimizing the product positioning of emergency syrup to “relieve cough, relieve phlegm, and relieve sore throat”; in addition, the company has enabled steady growth in the standard market by improving academic marketing expertise.
The commercial sector is speeding up integration reforms and improving the quality of operations. In 2023, the pharmaceutical business achieved revenue of 7.726 billion yuan (-3.31%). With no increase in sales revenue, the company paid close attention to internal management to reduce costs and control expenses, and the operating quality of the two major business platforms in Sichuan and Chongqing improved dramatically. The company accelerates integrated reforms from resources to business to management: 1) advance commercial reforms in depth and complete the integration of commercial platform companies in Chongqing and Sichuan; 2) accelerate supply chain construction; 3) vigorously expand the terminal market and increase sales of Chinese medicine tablets while increasing stocks; 4) breaking through overseas business; 5) promoting the digital evolution of commercial circulation.
The Chinese herbal medicine sector is expanding, focusing on the industrialization process of Cordyceps sinensis. In 2023, the Chinese herbal medicine resource sector achieved revenue of 1,017 billion yuan (+118.71%), and the overall scale expanded rapidly. The company's Chinese herbal medicine sector has achieved comprehensive coordination and integrated operation, from the cultivation and operation of medicinal herbs to the processing of Chinese herbal medicine tablets, to form a joint resource effort.
In 2024, the company will further expand the scale of the base. On the basis of consolidating the scale of large-scale bases such as Banxia and Cangshu, the company will add 50,000 mu of bases such as licorice and Huanglian; accelerate the increase in Chinese medicine tablets; it is worth noting that the pace of industrialization of Cordyceps will also accelerate.
Profit forecast: We expect the company's net profit to be 1.70 billion yuan, 1.304 billion yuan, and 1,555 billion yuan respectively in 2024-2026, with growth rates of 30.2%, 21.8%, and 19.3% respectively, corresponding to EPS of 1.92 yuan, 2.34 yuan, and 2.79 yuan. The company is rich in various approvals, and management efficiency and marketing system were optimized after the implementation of mixed reforms. Referring to comparable companies, we gave the company 25-30X PE in 2024, corresponding to a reasonable value range of 48.05-57.66 yuan, maintaining a “superior to the market” rating.
Risk warning: the risk of reforms falling short of expectations, policy risks such as collection, etc., and the risk of product promotion falling short of expectations.