Incident: The company released its 2023 annual report, achieving operating income of 17.86 billion yuan (+16.19%); net profit to mother of 1.67 billion yuan (+16.92%), net profit of 1.66 billion yuan (+18.32%) after deducting non-return to mother.
The large variety strategy continues to advance, and rising raw material costs are dragging down gross profit. The main revenue of the pharmaceutical industry in 2023 was 11.079 billion yuan, an increase of 12.6% over the previous year. The main revenue of the pharmaceutical business was 10.25 billion yuan, up 20.8% year on year, and gross margin reached 31%, up 0.2pp year on year. The company continues to focus on the big variety strategy. The top five varieties (Angong, Niuhuang Qingxin, Wuzi Yanzong, Liuwei Dihuang, and Jinqi) earned 4.95 billion yuan, a growth rate of 12.6%, and continued to increase. Looking at product segments, cardiovascular revenue was 4.29 billion yuan, up 8% year on year; supplement revenue was 1.73 billion yuan, up 10.41% year on year; heat cleansing category was 615 million yuan, up 16.1% year on year; gynaecology revenue was 377 million yuan, up 8.16% year on year. On the cost side, the company's gross profit margin in 2023 was 47%, down 1.5pp year on year, mainly due to a sharp rise in the price of natural beef yolk.
The parent company's profit margin continued to rise, and the subsidiary Tong Ren Tang's commercial profit growth rate was particularly impressive. In 2023, Tong Ren Tang's parent company's revenue was 4.109 billion yuan, up 11.21% year-on-year. The company's subsidiaries performed well overall. Among them, as the epidemic receded, Tongrentang Commercial's revenue performance was particularly impressive. Tong Ren Tang Commercial achieved operating income of 10.345 billion yuan, up 20.94% year on year, net profit of 550 million yuan, up 51.97% year on year, reaching 1001 stores; Tong Ren Tang Technology continued to promote a large-scale strategy, anchoring the marketing strategy of “channel control, price stability, and strong terminals”, and achieved operating revenue of 6.773 billion yuan in 2023; Tongrentang Sinopharm achieved revenue of 13.04% year on year in 2023; Tongrentang Sinopharm achieved revenue of 1,377 billion yuan in 2023 Yuan, down 7.94% year on year, was mainly affected by Tongrentang Sinopharm Ganoderma lucidum spore powder removal. As stocks are cleared, future revenue is expected to increase.
Promote accurate marketing and increase investment in R&D. The company's sales expenses rate was 19.2%, down 0.7 pp; the management fee rate was 8.5%, down 0.2 pp year on year, strengthening variety promotion efforts. Morten oligosaccharide capsules entered the “Guidelines for Clinical Application of Proprietary Chinese Medicines to Treat Depressive Disorder”, laying a solid foundation for the in-depth marketing and promotion of this product; actively planning e-commerce activities such as “New Year Festival”, “618,” and “Double 11". R&D expenses increased by 28.7% over the same period last year, mainly due to increased R&D investment in this period. The company is actively carrying out clinical work on existing varieties. The efficacy of Angong Niuhuang pills in treating ischemic stroke has been initially verified. Yufeng Ningxin Drop Pills has completed comprehensive evaluation studies; carried out research on the efficacy and mechanism of major varieties such as Tongren Niuhuang Qingxin Pills; and carried out safety evaluation studies on varieties such as Tongren Wuji Baifeng Pills and Kashiwazi Yangxin Pills to provide data support for market research and planning.
Profit forecasting and investment advice. Net profit due to mother for 2024-2026 is estimated to be 1.98 billion yuan, 2.28 billion yuan, and 2.61 billion yuan, respectively. The corresponding PE is 29 times, 25 times, and 22 times, respectively. It is recommended to keep an eye on it.
Risk warning: risk of fluctuations in raw materials, risk of policy changes in the pharmaceutical industry.