The company's performance is under phased pressure, and the adjustment cost investment focuses on the release of the 2023 annual report: in 2023, the company achieved operating income of 954 million yuan (-12.29%), net profit to mother of 81 million yuan (-27.48%), and net profit of 75 million yuan (-25.87%) after deducting non-return to mother.
On a quarterly basis, in 2023, Q1-Q4 companies achieved operating income of 2.09 (-16.24%), 3.17 (+15.19%), 2.50 (-27.54%), and 1.78 (-18.37%) billion yuan, respectively, and achieved net profit of 0.25 (-18.74%), 0.21 (-20.07%), 0.41 (-12.77%), and -0.07 (-203.16%) billion yuan, respectively, after deducting non-return net profit of 0.24 (-19.47%) and 0.18 (- 28.44%), 0.41 (-11.49%), -0.08 (-297.11%) billion yuan.
By product, in 2023, revenue for gynecological products was 676 million yuan (-12.08%), revenue for urinary system products was 191 million yuan (-13.78%), and revenue for heat cleansing and detoxification products was 81 million yuan (+1.11%).
Judging from the cost ratio, the company's sales expenses rate in 2023 was 45.86% (-3.07pct), the management expense ratio was 15.88% (+2.84pct), and the R&D expenses rate was 4% (+2.02pct).
The financial expense ratio was 1.26% (+0.23pct).
The company focuses on the long term. On the one hand, in the face of changes in the market environment, the company vigorously implements the “cost reduction and efficiency” reform of the marketing system. On the other hand, make appropriate cycle adjustments and resource allocation adjustments in long-term, medium, and short-term strategic deployment, increase investment in R&D, enhance infrastructure for traditional Chinese medicine innovation capabilities, and prepare R&D and innovation capabilities for the company's long-term development. R&D investment increased by 64.32% year-on-year in 2023, showing the largest amount of investment in R&D systems since launch.
Channel development is being further promoted, production capacity is continuously strengthened, and core competitiveness is continuously consolidated
Major breakthroughs have been achieved in the market-based sales of traditional Chinese medicine formula granules. In 2023, the company selected 146 formula granule varieties for centralized volume procurement by an inter-provincial alliance led by Shandong. This selection is conducive to improving the market competitiveness of the company's traditional Chinese medicine formula granule business segment and laying the foundation for continuing to expand the national market share of traditional Chinese medicine formula granule products.
The reform of the marketing system is beginning to bear fruit. In 2023, the company carried out reforms and adjustments to the marketing system. Judging from the results, the reduction in sales expenses at this stage already reflects the gradual realization of the results of the reform. In the future, as the company continues to expand in size and further increase in OTC market share, the results achieved in reducing costs and increasing efficiency of the marketing system reform will be further consolidated.
Production line construction projects have been completed and put into operation one after another to ensure increased production capacity. After the company's fund-raising projects “Traditional Chinese Medicine Formulation Granule Construction Project” and “Gel Agent and Compound Production Line Construction Project” were completed and put into operation, the company's production capacity reserves for formula granules were expanded to a certain extent, which contributed to the company's gel agent and compound production capacity. Furthermore, during the construction of the new production line, the company gradually enhanced the company's core competitiveness by introducing a large number of intelligent manufacturing and information technology to guarantee the company's intensive production capacity and low cost advantages under full production and operation conditions in the future.
It is planned to control Huilun Pharmaceutical through the acquisition of shares to deepen the small molecule chemical business layout, which is expected to increase the company's performance
On March 7, 2024, the company issued an announcement stating that it is planning to issue shares to some shareholders of Shanghai Huilun Pharmaceutical Co., Ltd. (hereinafter referred to as “Huilun Pharmaceutical”) to purchase part of Huilun Pharmaceutical's shares and control Huilun Pharmaceutical. It is proposed to purchase 85.12% of Huilun Pharmaceutical's shares through the issuance of shares. After the transaction is completed, Huilun Pharmaceutical will become a wholly-owned subsidiary of the company.
The acquisition is expected to increase the company's performance, gradually develop and mature Huilun Pharmaceutical's business, and further deepen the company's small-molecule chemical layout. Huilun Pharmaceutical is a chemical company with a combination of small molecule imitation and combination of small molecules, focusing on severe respiratory diseases, tumors, cardiovascular and cerebrovascular diseases. Over the past two years, its research and development results have continued to show, and it has begun large-scale industrial production, and it is expected that it will achieve good development prospects in the future. The company further extended its industrial layout to cutting-edge pharmaceutical fields such as small molecule chemicals, forming a “traditional Chinese medicine-chemical medicine” industrial layout, achieving rich integration of product structures, further expansion in the field of treatment, and upgrading the pipeline of innovative drugs in the future, and accelerating the construction of a leading comprehensive pharmaceutical enterprise. According to the company's announcement, Huilun Pharmaceutical had unaudited revenue of 414 million yuan and net profit of 264 million yuan in 2022; revenue of 998 million yuan and net profit of 31 million yuan in 2023, turning a loss into a profit.
Profit forecasting and investment advice
Without considering Huilun's merger, we expect the company's revenue to be 1,220, 14.67, and 1,768 billion yuan respectively in 2024-2026, with net profit of 1.22, 1.47, and 176 million yuan respectively, corresponding EPS being 0.53, 0.63, and 0.76 yuan/share, respectively. The current stock price corresponds to PE 24.0, 19.9, and 16.6 times, respectively. The company is leading in the traditional Chinese medicine segment. The expansion of OTC channels helps accelerate performance. Deepening the layout of the small-molecule chemical industry is expected to increase performance, have great potential for growth, and maintain “purchases” ratings.
Risk warning:
Risk of drug development failure; risk of channel promotion falling short of expectations.