Equity innovation is moving towards a new journey, and the business structure is being reshaped and optimized. The predecessor of KPC, “Kunming Pharmaceutical Factory”, was established in 1951. The company went through overall restructuring in 1995 and successfully listed in 2000. After years of development, the company has formed a business pattern focusing on independent natural botanicals, covering the distribution of traditional Chinese medicines, chemicals and pharmaceuticals. On January 19, 2023, the company completed the restructuring of the board of directors and supervisors. The controlling shareholder was changed from Huali Pharmaceutical to China Resources 39. Since then, in conjunction with business restructuring, the company launched a marketing organization transformation project, and established the “1381, 1951, and 777” divisions based on the original marketing architecture, further clarifying the company's development focus points and establishing a new strategic goal of “Yinfa Health Industry Leader, Premium Chinese Medicine Leader, and Aging Health - Chronic Disease Management Leader”.
Promote internal quality and efficiency, and steadily improve the quality of operations. In 2023, the company achieved revenue of 7.703 billion yuan (-6.99%), revenue decline, optimization of the business structure in major commercial sectors and reduction in foreign aid operations. Net profit to mother was 445 million yuan (+16.05%), and net profit of non-return to mother was 335 million yuan (+33.45%). The company's product structure continues to be optimized, and multiple measures have been taken to reduce costs and increase efficiency. In terms of operation management, the 6S management system has been introduced to promote digital transformation and the implementation of refined management. The company's operation management level and organizational mechanism efficiency have improved markedly, management expenses, financial expenses, etc. have all declined, and the quality of operation has steadily improved.
Continuing to build sales channels for Chinese medicines, the three major divisions are gaining momentum. Using 39 commercial channels, the company further integrates commercial channels, optimizes the original business model, continues to build a “reasonable coverage, rapid circulation, and effective sales” Kunming Pharmaceutical sales channel, and complete the integration of Kunyao sales channels in retail and medical systems throughout the country. The company covers the C side from brand+academia, from the B side of the construction of the Pharmaceutical Commercial Road in Kunming, and from the O side of party building and culture, fully exploits the potential of the three major divisions: 1) 777 Division: Focus on the 37 7 industry chain, give full play to the combined advantages of the multiple dosage forms and multiple product regulations of the Hesong Oral Series while further consolidating capacity building in the middle and lower reaches of the 37 industrial chain; 2) 1381 Division: Focus on core products, forge iron shelves, help channel wars, and use 39 Jiu Commercial Road to launch the “Iron Shelf Project” to establish the “Iron Shelf Project” to establish a “fixed iron shelf project” Create an impactful novel pharmaceutical marketing model with the goal of volume growth Power Sinopharm Brand; 3) 1951 Division:
Implement and strengthen the superior varieties in the hospital, accelerate the increase in potential products, take the initiative to prepare collection and coping strategies to stabilize the basic market, and improve channel efficiency and coverage capabilities.
Profit forecast: We expect the company's net profit to be 611 million yuan, 744 million yuan, and 899 million yuan respectively for 2024-2026, corresponding to EPS of 0.81 yuan, 0.98 yuan, and 1.19 yuan respectively. The company's strategic focus was once again confirmed. It is committed to becoming the first stock in Yinfa Economy. After using China Resources to build the Kunming Pharmaceutical Business Road, the company's marketing and brand power are expected to improve. We gave the company a 2024 25-30X PE (corresponding PB is 2.59-3.10X, PS is 1.79-2.15X, refer to comparable companies, we think it is at a reasonable level), and the corresponding reasonable value range is 20.16-24.20 yuan, maintaining the “superior to the market” rating.
Risk warning: market and policy risk, drug price reduction risk, raw material price fluctuation risk, R&D innovation risk.