It is expected to maintain a dividend rate of no less than 30% in the next three years: according to the company's annual report, the company achieved operating income of 5.341 billion yuan in 2023, an increase of 18% over the previous year; realized net profit to mother of 1,482 billion yuan, an increase of 38% over the previous year. The 2023 results were in line with our expectations. Among them, 4Q23 achieved operating income of 1,429 billion yuan, a year-on-year increase of 56%, and realized net profit of 414 million yuan to mother, an increase of 136% over the previous year. In 2023, the company plans to pay a cash dividend of 0.3 yuan per share, with a dividend ratio of 37%. The company recently released the “Shareholder Return Plan for the Next Three Years (2024-2026)”. It plans that the annual cash dividend amount for 2024-2026 will not be less than 30% of the net profit realized in the current year, or the total cash dividend for the three years will not be less than 30% of the total net profit for 2024-2026.

Blood products grew steadily, and plasma stations and plasma collection volumes increased rapidly: the company's blood products business achieved revenue of 2,926 billion yuan (+9% YoY) in 2023; gross profit margin of 54.34% (2.04ppts year-on-year increase). By product, human blood albumin, intravenous propionyl, and other blood products achieved revenue of 1,057 billion yuan (+7% YoY), 845 million yuan (+9% YoY), and 1,025 million yuan (+12% YoY). As of the end of the 2023 period, the company currently has 32 single plasma collection stations (including sub-stations). In 2023, the plasma collection volume was 1342.32 tons, an increase of 20% over the previous year. During the reporting period, the company completed 4 plasma stations, including Huangchuan County and Shangshui County, and successfully obtained the “Single Plasma Collection License”. Dengzhou obtained the license in February 2024. The above pulp collection stations have all begun. The plasma stations in Xiangcheng County and Qi County are proceeding with the construction of single plasma collection stations as planned. They are expected to be completed and approved in the first half of 2024.

The vaccine business has achieved rapid growth, and the product line is expected to be further enriched: in 2023, the vaccine business achieved revenue of 2,405 billion yuan (+32% year over year); net profit of 860 million yuan (+65% year over year). The sharp year-on-year increase in vaccine performance was mainly due to an increase in people's willingness to get vaccinated against influenza and the low base for 2022. The company issued a total of 94 batches of influenza vaccine in 2023, including 73 batches of quadrivalent influenza vaccine (adult dosage form), 15 batches of quadrivalent influenza vaccine (children's dosage form), and 6 batches of trivalent influenza vaccine. As awareness of the influenza vaccine continues to rise, the company's products are expected to be further expanded. In February 2023, the company successively obtained “Drug Registration Certificates” for freeze-dried human rabies vaccine (Vero cells) and adsorbed tetanus vaccine, and the company's product line is expected to be further enriched.

Maintain the purchase and raise the target price of DCF (WACC: 9.0%) to 27.77 yuan: we will slightly increase the 2024-25 EPS by 1%/1% and add the 2026 forecast. Our target price is 30x the 2024 P/E, which is slightly higher than comparable companies' 28x. Since Hualan Biotech has a high-margin vaccine business, it should have received a partial premium.

Risk warning: 1) Risk of rising raw material costs; 2) problems caused by the safety of blood products; 3) progress in drug development falls short of expectations; 4) risk of blood product production.