Core views:
The company released its 2023 annual report. In 2023, the company achieved revenue of 49.696 billion yuan (+9.23%, the following are year-on-year values), net profit of 2.116 billion yuan (+9.26%), net profit after deducting non-return to mother of 2,093 billion yuan (+9.52%), of which 23Q4 achieved revenue of 13.166 billion yuan (+20.17%), net profit of 684 million yuan (+28.41%), and net profit after non-return to mother of 662 million yuan (+35.46%), which is in line with expectations.
The narcotics sector maintained its leading edge, and direct sales in the Beijing region continued to grow steadily. By business type, (1) The company's narcotic drug business has maintained a leading market share. The participating company Yichang Renfu achieved revenue of 8.060 billion yuan (+15.0%) and net profit of 2,429 billion yuan (+16.9%) in 2023, contributing more than 22% to the company's net profit; (2) Direct pharmaceutical sales are the company's core business and achieved revenue of 32.529 billion yuan (+10.93%) in 2023. The company insisted on improving quality and efficiency and growing steadily, with a gross margin of 6.26%, which remained relatively stable; (3) The distribution sector achieved revenue of 18.534 billion yuan (+9.15%) in 2023; (4) Industrial sector It has achieved annual revenue of 1,077 billion yuan (-20.60%). For the industrial sector, the company insists on focusing on the transformation of the marketing system, leveraging the Group's resources to improve market sales, and continuously invest in the release of the company's new products.
The gross margin and period expense ratio remained stable. The company's overall gross margin decreased by 0.37pp to 8.03% in 2023, remaining relatively stable. In terms of the cost rate for the period, the sales expense ratio, management expense ratio, and R&D expense ratio declined by 0.16 pp, 0.02 pp, 0.01 pp to 1.94%, 0.94%, and 0.14%, respectively. Through continuous promotion of quality improvement, cost reduction and cost control, the company maintained a relatively stable level of various cost indicators, and steadily improved its operating quality.
Profit forecasting and investment advice. We expect the company's EPS to be 3.15, 3.53, and 3.95 yuan/share in 24-26, respectively. Considering that the company's fine hemp and Beijing regional direct sales have maintained steady growth, we gave the company 13 times PE in 24 years, corresponding to a reasonable value of 40.92 yuan/share, maintaining a “buy” rating.
Risk warning. Risk of price reduction in volume procurement exceeding expectations; risk of narcotic drug policy; risk of increased market competition; risk of accounts receivable turnover; risk of product sales falling short of expectations.