Key points of investment

On April 12, the company released its report for the first quarter of 2024:2024Q1 revenue of 1.36 billion yuan (+0.48%), net profit to mother of 148 million yuan (+4.67%), net non-net profit of 140 million yuan (+0.2%), net operating cash flow of 199 million yuan (+4.67%), and EPS of 0.26 yuan/share. We expect the company's revenue for 2024-2026 to be 57.84/66.587.57 billion yuan, respectively, net profit to mother of 6.49/7.83/928 million yuan, EPS 1.11/1.34/1.59 yuan/share, respectively. The current closing price corresponds to PE 17.24/14.27/12.04 times, respectively, maintaining a “buy” rating.

Revenue: Oral liquid resumed rapid growth. Revenue from injections was 538 million yuan (-4.88%)/1.05 billion yuan (-15.4%)/+1802 million yuan (-15.4%) for COVID-19 diagnosis and treatment requirements in 2023Q1; oral liquid was 370 million yuan, +30.24% year over year, and +14.35% month-on-month. Jin Zhen oral liquid has resumed rapid growth; revenue for capsules, granules, and pills/tablets was 197 million yuan (-4.88%)/105 million yuan (-15.4%)/+1802 million yuan (-15.4%)/+1802 million yuan (-15.4%) 4%) 2024Q1 /0.51 billion yuan (-13.1%); gel revenue was 0.09 million yuan (+260.97%), and the main group of musculoskeletal pain relief gels achieved rapid growth.

Profit: Gross margin declined slightly, and rate control was good. Profitability was stable. In terms of gross margin, the overall gross margin of 2024Q1 was 74.61% (-0.49pct). Among them, the gross margin of injections/oral liquids/granules decreased slightly (about 2 pct), the gross margin of the patch decreased by 4.6 pct, the gross margin of gels remained basically unchanged, and the gross margin of capsules and pills increased by about 3 pct. In terms of rate, the 2024Q1 sales expense ratio was 37.44% (-6.52pct), with a significant decrease of 8.57% (+4.51pct). The main reason is that the company is increasing investment in talent and carrying out management-related activities on the basis of personnel structure adjustments to achieve development strategies. The R&D cost rate is 15.02% (+1.08pct), and the financial cost ratio is -0.67% (-0.43pct). Overall, the company's overall gross margin declined slightly, but rate control was good. The deducted non-net interest rate was 10.28% (-0.03pct), and the net interest rate to mother was 10.89% (+0.44pct), and profitability was steady.

Operational efficiency continues to be optimized, repayment is good, and cash is sufficient

The number of 2024Q1 accounts receivable turnover days was 44.67 days, a decrease of 3.28 days from the previous year and a decrease of 6.43 days; the number of inventory turnover days was 97.27 days, an increase of 2.22 days over the previous year and a decrease of 2.31 days from the previous month, optimizing the company's overall operating efficiency. 2024Q1 net operating cash flow of $199 million (+427.77%), mainly due to high cash repayments, net investment cash flow of -$105 million (-62%), mainly due to high investment in construction projects, net financing cash flow of -$16 million, mainly due to the implementation of a share repurchase plan; as of the end of March 2024, the company's cash and cash equivalents at the end of March 2024 was $2,046 million (+38.88%), with sufficient cash.

R&D results continue to be implemented

In March 2024, the company received an approval notice for clinical trials of injectable AAPB (Class 1 new chemical drug). Injectable AAPB is a novel anti-ischemic stroke neuroprotectant jointly developed by the company and China Pharmaceutical University. It is clinically intended for acute ischemic stroke. In April, the company received a notice of approval for the clinical trial of Qiang Qin granules. The clinical use of Qiang Qin pellets is for influenza. The prescription originates from the Jiangsu Provincial Hospital of Traditional Chinese Medicine and has been used clinically for decades. In 2023, the company received clinical trial approval notices for KYS202002A injection (treatment of recurrent and refractory multiple myeloma), Ujihuangou granules (treatment of early-onset ovarian insufficiency in traditional Chinese medicine), pediatric Buddha Peony and Chinese granules (treatment of functional abdominal pain and gas blockage in children), and pediatric spleen supplements (treatment of functional indigestion, spleen deficiency and indigestion in children).

Risk warning:

The promotion of non-injectable products falls short of expectations; there is a risk of price reduction in collection.