Incident: The company released its 2023 annual report. In 2023, it achieved total operating revenue of 39.11 billion yuan, an increase of 7.2% year on year; net profit to mother of 4.09 billion yuan, an increase of 36.4% year on year; net profit after deducting non-return to mother was 3.76 billion yuan, an increase of 16.5% year on year. The 2023 dividend plan is a dividend of RMB 20.77 for every 10 shares, with a total dividend of RMB 3.706 billion, accounting for 90.53% of net profit attributable to mother in 2023.

The performance is outstanding, and the core products continue to be expanded. In 2023, the company's industrial revenue was 13.74 billion yuan, up 7.58% year-on-year. By business group, 1) The main business revenue of the pharmaceutical business group was 6.481 billion yuan (+8.16%), mainly due to the aging population, recovery in sports demand, and the rapid growth of retail pharmacies, especially the OTC business chain. Among them, in terms of the core varieties of Baiyao, Yunnan Baiyao aerosols contributed more than 1.7 billion yuan (+15.27%) to operating revenue, Yunnan Baiyao capsule sales revenue exceeded 600 million yuan, Yunnan Baiyao (powder) and Yunnan Baiyao Venture Adhesive sales revenue exceeded 300 million yuan. Anti-inflammatory tablets single product , Agastache Zhengqi Water, Gynecological Anti-inflammatory Medicine Gong Xuening Capsule, and the plant supplement Qi Xue Kang Oral Liquid increased 16%/124%/47%/15% year over year respectively, with the revenue of Qi Xue Kang oral liquid reaching 231 million yuan; 2) The health products business group achieved main business revenue of 6.422 billion yuan (+6.50%), thanks to a focus on oral health and care products, to continuously promote high-quality business development. Among them, Yunnan Baiyao toothpaste achieved a market share of 24.60% and continued to maintain the number one market share in the anti-shedding sector. Yangyuanqing skin care products Achieved a significant year-on-year increase in revenue of 36%; 3) The Chinese Medicine Resources Business Group achieved external revenue of 17.1 billion yuan (+22.2%), mainly based on customer demand to upgrade the traditional Chinese medicine resource industry platform; 4) Improved operational efficiency of the provincial pharmaceutical business group, strengthened multi-warehouse collaboration capabilities, and achieved main business revenue of 24.49 billion yuan (+5.63%). Commercial revenue of 25.295 billion yuan, an increase of 6.98% over the previous year, is due to the fact that the company continues to develop new business models through mergers and joint ventures based on existing business.

Strengthen innovation capabilities, and achieve phased results in nuclear drugs. The company successively introduced high-level talents in various fields, appointed Mr. Zhao Yingming as the company's chief commercial officer and senior vice president during the reporting period, and attracted well-known scientists from home and abroad through the Peking University-Yunnan Baiyao International Medical Research Center school-enterprise cooperative R&D platform. Yunhe Pharmaceutical (Tianjin) Co., Ltd. obtained approval for the environmental impact report form for the Tianjin Nuclear Drug Research and Development Center Project (new use and sale of radiopharmaceuticals) in early January 2024, and officially started construction. It will effectively support the development of the company's innovative nuclear drug pipeline in the future. The INR101 project, an innovative nuclear drug for prostate cancer diagnosis, received an acceptance notice for registered clinical trials in February 2024.

Profitability continues to improve, and new business layouts continue to be promoted. The company's gross profit margin in 2023 was 26.51% (+0.19pp), and the company's industrial gross margin reached 64.24% (+0.8pp), mainly because the company implemented lean internal operations to reduce costs and increase efficiency. The company focuses on cultivating emerging business segments such as the Nourishing Health Products Division, the Skin Beauty Division, the Medical Devices Division, and Tianyi Tea Products Division in an effort to create new revenue growth points for the company. In August 2023, the company's smart technology business unit (BU) officially started operation to further enhance the company's level of digitalization and intelligence; in November 2023, the Lijiang Digital Chinese Herbal Medicine Industry Platform, jointly built by Yunnan Baiyao and the Lijiang Yulong County People's Government, was officially put into operation to push the brand's Chinese herbal medicine project into a new stage; actively using artificial intelligence to create a digital service experience for employees. In October 2023, the company's first digital employee “Bai Xiaoqi” based on an artificial intelligence model was launched, improving employees' office efficiency, and in February 2024, The company signed a strategic cooperation agreement with HUAWEI CLOUD Computing Technology Co., Ltd., and the two sides will promote R&D and innovative application of artificial intelligence technology in the traditional Chinese medicine industry. The company's digitalization empowers the industry to continue to strengthen, and its competitiveness is expected to improve further in the future.

Profit forecasting and investment advice. The company's net profit due to mother in 2024-2026 is estimated to be 4.48 billion yuan, 4.98 billion yuan, and 5.46 billion yuan. The corresponding PE is 20, 18, and 17 times, respectively. It is recommended to keep an eye on it.

Risk warning: Risks such as cost control falling short of expectations, sales of core products falling short of expectations, and impairment of financial assets.