Incidents:
On April 12, 2024, Xintian Pharmaceutical disclosed its 2023 annual report. In 2023, the company achieved operating income of 954 million yuan, -12.29% year over year; realized net profit of 81 million yuan, -27.48% year on year; realized net profit of 75 million yuan without return to mother, -25.87% year on year. In a single quarter of 2023Q4, the company achieved operating income of 178 million yuan, -18.37% year on year; net profit attributable to mother of 210 million yuan, -203.16% year over year; net profit after deducting non-return to mother of -08 million yuan.
Core product revenue is under pressure
By product, in 2023, gynecological products achieved revenue of 676 million yuan, -12.08%; urinary system products achieved revenue of 191 million yuan, -13.78% year-on-year; and heat-clearing and detoxification products achieved revenue of 81 million yuan, +1.11% year-on-year, and core products were under pressure in the short term.
The marketing system reform has begun to bear fruit, and costs have been optimized
In 2023, the company carried out reforms and adjustments to the marketing system, mainly based on further promoting “cost reduction and efficiency” of the marketing system under the effect of scale, and strengthening the marketing team and the deployment of relevant market strategies such as the professional and refined management of product marketing promotion. In 2023, the company's gross margin was 77.07%, -0.19pct year on year. Among them, the gross margin of gynecological products was 76.99%, +0.21pct year on year, which is relatively stable. The gross margin of urinary system products was 83.58%, -1.13pct year on year.
Looking at the cost ratio side, the results of the company's reform gradually became apparent in the short term. The sales expense ratio was 45.86%, -3.07pct; the management expense ratio was 15.88%, +2.84pct year on year; and the R&D expense ratio was 4%, +2.02 pct year on year.
Epitaxial expansion is expected to form a “traditional Chinese medicine+chemical medicine” dual-track pattern. On March 8, 2024, the company announced that it intends to purchase 85.12% of Huilun Pharmaceutical's shares held by 88 Huilun Pharmaceutical shareholders including Dong Dalun. After the transaction is completed, Huilun Pharmaceutical will become a wholly-owned subsidiary of the listed company. Huilun Pharmaceutical is committed to innovation and development in the fields of immuno-inflammatory, anti-tumor, cardiovascular, and gynecological diseases. We believe that after the completion of this transaction, the company's industrial layout is expected to be further extended to the field of small molecule chemicals. In the long run, it is expected to form complementary industries and resource synergy with the company, forming a “traditional Chinese medicine-chemical medicine” dual product pattern.
Profit Forecasts and Investment Ratings
In 2023, the company continued to increase investment in R&D, and its performance was under pressure in the short term. We believe that with the gradual implementation of marketing reforms and the implementation of extended mergers and acquisitions, the performance is expected to resume steady growth. Revenue for 2024-2025 was lowered from $1,564/1,867 million yuan to $1,063/1,192 million, and the 2026 revenue forecast was $1,339 million; the net profit forecast for 2024-2025 was lowered from 168/202 million yuan to $1.01/116 million, and the net profit forecast for 2026 was $134 million. Adjusted to an “Overweight” rating.
Risk warning: risk of product sales falling short of expectations, risk of policy fluctuations, risk of reforms falling short of expectations