Sales growth slowed in 2023: The company's revenue in 2023 was 31.45 billion yuan (+1.7% YoY, same below), gross profit of 22.18 billion yuan (-0.4%), gross profit margin 70.5% (-1.4 pts). Sales expenses of 9.141 billion yuan (-11.6%), sales expenses ratio 29.1% (-4.3 pts). Administrative expenses of 1.119 billion yuan (+1.4%), administrative expenses ratio 3.8% (+0.0pts). Net profit attributable to mother and net profit after deducting non-return to mother were 5.883 billion yuan (-3.6%) and 6.275 billion yuan (+2.8%), respectively, with a net interest rate of 20.0% (+0.3 pts) after deducting non-return to mother. Among the various business segments, the proprietary pharmaceutical sector had revenue of 25.64 billion yuan (+4.6%) and operating profit margin of 26.1% (+1.4pts); affected by the continued slump in vitamin C product prices, the vitamin C raw materials sector had revenue of 1.93 billion yuan (-23.7%) and an operating profit margin of 0.3% (-17.2 pts); the antibiotic raw materials sector had revenue of 17.1 billion yuan (+13.9%), operating profit margin 9.0% (+1.4 pts); the functional food sector had revenue of 2.112 billion yuan (-8.9%), operating interest rate of 25.9 billion yuan % (-1.2 pts)

Enbipu's two-way expansion maintained its potential, and new products were launched one after another; in 2023, the company's nervous system revenue increased to 9.089 billion yuan (+12.1%), accounting for 35.4% of proprietary drug revenue. As a newly-needed drug, Enbip is still on the rise. After the patent for butylphthalein injection forms and softgels expired, the company still holds a patent for the active pharmaceutical composition of butylphthalein and its preparation method, which expires in 2032. In addition, the company is also actively developing new indications to further extend the life cycle of Enbip. As the company continues to cultivate the out-of-hospital market and expand new indications, Enbipu still has some room for growth. Ming Fu Le has maintained rapid growth since the acquisition, and was approved as a new indication for thrombolysis in acute ischemic stroke in early '24, further providing impetus for continued growth in the neurological sector. Due to the continued impact of price reductions in Keaili's collection, revenue in the oncology sector fell to 6.139 billion yuan (-16.4%) during the period, accounting for 23.9% of the revenue from proprietary drugs. With the gradual development of collection and release, Q4 '23 showed a trend of resuming growth. Furthermore, the approval and marketing of major products such as Doenda (mitoxantrone liposome), Doenyi (irinotecan hydrochloride liposome), and narusobimab (RANKL mAb), and subsequent commercialization of JMT101 (EGFR mAb) and DP303c (HER-2 ADC) will also fully fill the gap of declining sales of old products. Revenue from anti-infection, cardiovascular, respiratory, digestive metabolism, and other fields was 4.236 billion yuan (+19.7%), 2,440 million yuan (-15.5%), 1,560 million yuan (+124.0%), 889 million yuan (+17.8%), and 1,249 million yuan (+24.1%), respectively.

Self-developed BD progressed on a dual track, and innovation and transformation welcomed benefits: the company further strengthened investment in innovative research and development, with R&D expenses of 4.831 billion yuan (+21.2%) during the period, accounting for 18.8% of proprietary drug revenue. It is expected that more than 50 new products or new indications will be approved within 5 years. Furthermore, in 2023, the company obtained Chinese interests in glutinil and Paxlovid, and also achieved an external license (Nectin-4 ADC). The commercial cooperation was very rewarding. With the country's strong support for innovative drugs, the company's innovation and transformation strategy will achieve further results.

The target price is HK$8.61, maintaining the purchase rating: We used DCF as the company's valuation. Of these, WACC was 11%, with a sustainable growth of 1%. We calculated that the target price was HK$8.61, which corresponds to a price-earnings ratio of 15.9 times in 2024, with room for an increase of 38.4% compared to the current price.