Key points of investment

Incident: Jichuan Pharmaceutical released its 2024 quarterly report. During the reporting period, it achieved revenue of 2,403 billion yuan (YoY +0.60%), net profit attributable to mother of 845 million yuan (+24.90% YoY), and net profit of 726 million yuan (YoY +19.83%); performance exceeded expectations.

Profitability levels have increased significantly. The 24Q1 company's gross margin, sales expense ratio, and R&D expense ratio were 81.12%/41.19%/3.82%/4.75%, respectively, -0.91/-4.41/+0.31/+0.29pct; the large decline in sales expenses is expected to be due to the continued increase in the share of pharmacies, and there is still room for continued decline. The net interest rate after deduction was 30.23%, +4.85pct year-on-year.

The quality of operations continues to improve. The 24Q1 company's accounts receivable were 1,956 billion yuan, down 770 million yuan from the previous month (-28.25%), and there was a marked improvement in repayment; cash received from sales of goods and services was 3.426 billion yuan, an increase of 1,024 billion yuan over the current quarter's revenue, which is expected to be due to accounts receivable repayments; monetary capital reached 11.392 billion yuan, improving resilience to risks.

Accelerate the upgrading of the marketing system. In 2024, the company will reshape its core marketing competitiveness: on the cinema side, continue to strengthen the development of empty regions and empty markets, strengthen academic leadership and enrich evidence-based product medical evidence through continuous promotion of high-end academic conferences, post-product research, and improvement of product life cycle management; on the retail side, establish a business-oriented management system, use the advantages of omnichannel mutual empowerment to form a network sales pattern, and continue to form a new incremental market.

Published the 2024 Employee Stock Ownership Plan (draft). In April 2024, the company disclosed the 2024 employee shareholding plan (draft), which aims to establish a scale of no more than 14.3055 million yuan. The total number of shares to be distributed is not more than 1% of the company's total share capital, the total number of employees to be distributed is no more than 70 people, and the purchase price of shares is 37.78 yuan/share. The assessment index is an individual performance assessment index. The assessment year is 2024-2026, which will help enhance the cohesion and competitiveness of employees, and promote the long-term, sustainable and healthy development of the company.

Maintain a “buy” rating. The estimated net profit for 2024-2026 is 30.81/36.00/4.202 billion yuan, up 9.16%/16.85%/16.72% year-on-year, and EPS is 3.34/3.91/4.56 yuan, corresponding to PE13.15x/11.26x/9.64x. Maintaining a “buy” rating, considering that the company has strong brand advantages and channel advantages.

Risk warning: risk of policy adjustments, risk of cost fluctuations, increased market competition