Key points of investment
Incident: Tianshili released its 2023 annual report. During the reporting period, it achieved revenue of 8.674 billion yuan (YoY +0.42%, adjusted compared to 2022), net profit attributable to mother of 1,071 billion yuan (+505.34% YoY, adjusted for 2022), net profit without return to mother of 1,181 billion yuan (+60.11% YoY, adjusted for 2022); Single Q4 achieved revenue of 2.03 billion yuan (-15.64% YoY), net profit of 0.39 million yuan (YoY -50.44%) Profit of 127 million yuan (+367.59% YoY); performance is in line with expectations.
Business performance has grown steadily. In 2023, the pharmaceutical industry/pharmaceutical business achieved revenue of 74.21/1,215 billion yuan respectively, +3.22%/-14.21% year-on-year. By industry, traditional Chinese medicine/chemical pharmaceuticals/chemical raw materials/biopharmaceuticals achieved revenue of 59.71/12.03/0.70 billion yuan, or +6.62%/-5.30%/-19.67%/-23.47%; by product, cardiovascular and cerebrovascular, anti-tumor/cold fever/liver disease treatment/others achieved revenue of 52.54/1.90/5.08/6.57/812 million yuan, +3.38% compared with the same period. Compound Danshen Dropping Pills sold 141 million boxes in 2023, +9.89% year over year; sales volume of Nourishing Serum Nourishing Brain Pills/Astragalus Ginseng Yiqi Droples/Injectable Yiqi Fumai/Shuilinjia sales volume was +0.99%/+11.45%/+8.10%/+20.25%/+15.52%, respectively.
The quality of operations has been steadily improving. The company's gross margin in 2023 was 66.80% (+2.93pct year over year, adjusted from 2022), 74.93%/65.34%/61.81%/82.18%/61.47% of cardiovascular, anti-tumor, cold and fever/liver disease treatment/others, respectively, +2.18/+0.17/-0.65/-3.40pct. The sales/management/R&D expense ratio was 34.40%/3.95%/10.57%, +0.90/-0.38/+0.79pct (adjusted from 2022); net interest rate after deduction of non-return mother was 13.62% (+5.08pct, adjusted in 2022); weighted average ROE was 8.75%; accounts receivable were 688 million yuan, -29.78% month-on-month; accounts receivable turnover was 32.78 days, a record low in nearly 20 years.
Accelerate the development of digital traditional Chinese medicine. R&D investment in 2023 was $1,315 billion (+29.49% YoY). The company accelerated integration into the national strategic science and technology system, successfully established a national key laboratory for the creation of modern traditional Chinese medicine, and signed a contract with HUAWEI CLOUD to jointly build a large-scale model of traditional Chinese medicine. By the end of 2023, the company had a R&D pipeline covering 98 products under development, of which 36 were in clinical trials, 26 were in clinical phase II and phase III, and 9 innovative traditional Chinese medicines were in phase III clinical research, including Anshen Dipping Pills, Qingshu Granules, Back Pain Relief Tablets, Antewei Granules, Citrus Milk Detoxification Capsules, Lianxiaxou Granules, T89 to treat chronic stable angina pectoris symptoms and T89 to treat acute plateau syndrome (AMS); Anshen Dipping Pills, T89AMS, and Puyouke bloody brain All cases were enrolled in the stroke indication phase IIc validation test and amigumab phase IIb clinical trial.
Maintain a “buy” rating. The estimated net profit for 2024-2026 is 13.84/15.51/1,736 billion yuan, up 29.21%/12.06%/11.96% year-on-year, and EPS is 0.93/1.04/1.16 yuan, corresponding to PE16.08x/14.35x/12.82x. Considering that the company has strong brand power and R&D strength, it maintains a “buy” rating.
Risk warning: R&D innovation risk, policy adjustment risk, cost fluctuation risk