Incident: Jichuan Pharmaceutical released its 2023 annual report. During the reporting period, the company achieved operating income of 9.655 billion yuan (+7.32%); net profit to mother of 2,823 billion yuan (+30.04% year over year); net profit after deducting non-return to mother of 2,692 billion yuan (+32.72% year over year). The performance exceeded expectations.

Continued sales of large single products outside the hospital led to growth in performance. By industry, the commercial side of the company achieved operating income of 359 million yuan (+2.66% year over year); the industrial side achieved operating income of 9.279 billion yuan (+7.56% year over year), of which heat relief and detoxification products achieved revenue of 3.38 billion yuan (+17.68% year over year) and 2,741 billion yuan (+13.01% year over year), respectively, which is expected to be affected by two aspects: 1) The combined prevalence of various respiratory diseases led to an increase in sales of cold products such as Putilan and children's tempeh; 2) 2023 was the first year of health insurance in Pu Di Lan province, the first year of medical insurance company The expansion of sales channels has been actively strengthened, and the coverage rate of Pu Di Lan and Children's Ji Qiao outside the hospital has continued to increase, creating new volume.

Expense control showed results, and the net profit margin increased significantly. In 2023, the company's comprehensive gross margin was 81.52% (-1.39pcts year on year), of which the industrial gross margin was 83.05% (-1.50pcts year on year), which is expected to be affected by the rise in Chinese herbal medicine prices. Expenses declined significantly during the company period. Among them, the sales expense rate/management expense rate/R&D expense rate/ financial expense ratio were 41.5%/3.86%/4.81%/-2.67%, respectively, -4.22pcts/-0.19pcts/-1.34pcts/-1.72pcts. The decline in sales expenses is expected to benefit from the increase in the share of the company's product retail channels, and cost control continues to improve. The company's net profit margin in 2023 was 29.28% (+5.14pcts year over year), and profitability continued to increase.

The cash dividend ratio has increased. According to the “2023 Annual Profit Distribution Plan Notice”, the company plans to distribute cash dividends of 1,197 billion yuan (tax included), accounting for 42.41% of net profit attributable to mother (+5.04pcts year over year).

Give it an “gain” rating. The company's net profit for 24-26 is estimated to be 30.32/3.898/3881 billion yuan respectively, up 7.4%/15.4%/10.9% year-on-year, and EPS is 3.29/3.79/4.21 yuan respectively. Currently, the corresponding stock price valuations are 12.2x/10.6x/9.6x, respectively. Considering that the company is a leader in traditional Chinese medicine prescription medicine, endogenous and epitaxial two-wheel drive growth, it was given an “increase in weight” rating.

Risk warning: risk of BD progress falling short of expectations, industry policy risk, product promotion falling short of expected risk.