Event: The company released its 2023 annual report. In 2023, the company achieved revenue of 26.3 billion yuan (+12.2%); net profit attributable to mother of 3.77 billion yuan (-32.9%); net profit to mother after deducting one-time special profit and loss was 4.92 billion yuan (+3%). Net operating cash flow inflow of 5.23 billion yuan (+10.3%) for the year.
Pharmaceutical business: Accelerate the deployment of commercial network coverage and continue to consolidate the leading position. In 2023, the pharmaceutical business achieved revenue of 234.04 billion yuan (+14%); realized profit of 3.35 billion yuan (+7.7%). In 2023, the company further improved the pharmaceutical distribution network, completed the merger and acquisition of Hunan Runji Pharmaceutical and the Zhengda Tianqing commercial sector merger and acquisition, filling the gaps in the networks of biological products in Hunan Province, as well as Suzhou and Lianyungang cities. In 2023, there were 6 provinces where the company's pharmaceutical commercial sales exceeded 10 billion dollars. A total of 29 imported varieties were successfully introduced throughout the year; the imported vaccine agency business achieved annual sales revenue of about 5.2 billion yuan, and a contract sales cooperation was reached with Pfizer for the 13-valent pulmonary vaccine (Pieter 13); the DeviceHealth business achieved annual sales revenue of about 36.3 billion yuan, and worked with Renhui Biotech on benaglutide injections (Fisumex?) A sales promotion cooperation was reached; a contract sales strategy cooperation was reached with Sanofi. The cooperation involves more than 20 products in key disease fields, and the contract size is expected to exceed 5 billion dollars.
Pharmaceutical industry: Focus on the big variety strategy and continue to promote the strategy of cultivating large varieties of traditional Chinese medicine. In 2023, the pharmaceutical industry achieved revenue of 26.26 billion yuan (-1.9%); realized profit of 2.12 billion yuan (-5%). The company focused on a strategy of focusing on large varieties, and achieved 48 products with annual industrial sales revenue exceeding 100 million, which is the same as last year. It covers cardiovascular, digestive system, immune metabolism, systemic anti-infection, neuropsychiatric, and anti-tumor fields. Sales revenue of 60 key varieties was 14.94 billion yuan, a slight decrease over the previous year. The Chinese medicine sector achieved industrial revenue of 9.82 billion yuan (+10.3%) in 2023. By improving terminal coverage, optimizing commercial layout, developing overseas markets, expanding sales channels, and conducting health lectures, the company greatly increased sales revenue of over 100 million varieties such as Fresh Veil Drink, Gastric Rejuvenation, and Rokushin Pills, with an average growth rate of over 40%. In addition, the company has selected several dormancy recovery products, and sales of products such as soya incense pills have resumed.
The innovation pipeline has entered a harvest period, and the market potential is huge. In 2023, the company invested 2.6 billion yuan in R&D. Among them:
R&D expenses of 2.2 billion yuan (+4.4%). By the end of 2023, the company had launched 3 innovative drugs: Ankeri (recombinant human adenovirus type 5), Kellicom (Eureklin), and Peficom (bifidobacterium trifecta), and 1 improved new drug for lansoprazole bicarbonate. There are already 68 new drug pipelines under development. Three Class 1 new drugs have been submitted for marketing. Among them, marketing applications for I001 (hypertension) and X842 (reflux esophagitis) have been accepted, and marketing applications for SRD4610 (fever) have been submitted.
Profit forecasting and investment advice. Net profit due to mother for 2024-2026 is estimated to be RMB 5.44 billion, RMB 6.01 billion and RMB 6.62 billion respectively, up 44.3%/10.5%/10.3%, respectively, maintaining the “buy” rating.
Risk warning: risk of industry policy fluctuations; R&D progress or failure to meet expectations; risk of impairment of goodwill.