Key points of investment:

Net profit to mother achieved positive growth on a high basis, and net profit not attributable to mother grew at a high rate.

The company achieved revenue of 955 million yuan (+14.7%) in Q1, net profit attributable to mother of 198 million yuan (+5.4%), after deducting not 193 million yuan (+35.7%).

On the cost side, Q24 sales expense ratio 19.87% (+3.14pct), management expense ratio 3.11% (+0.21pct), financial expense ratio -1.53% (-0.35pct), and R&D expense ratio 1.76% (-0.29pct).

Pharmaceutical industry: Optimized inventory structure, smooth channel sorting, sharp decline in core product inventory.

Key product inventory optimization: In 23 years, the production of Musk Hemorrhoid Cream/Musk Hemorrhoid Supposit/Hemorrhoid Relief Tablets/Babao Eye Ointment/Jinxuan Hemorrhoid Scrub decreased by 11.7%/11.8%/30.6%/30.6%/29.9%, respectively, and inventory volume decreased by 86.1%/44.4%/49.6%/27.2%/51.8%, respectively. We think Q1 sales were good in '24.

Offline channel integration: the channel has added a joint channel department and a broad channel department to expand the county market and the sinking market; consolidate channels for core products, reduce the number of first-level dealers and optimize cooperation methods; strengthen marketing center support, and basically achieve data collection and tracking throughout the entire chain of sales and storage.

Brand promotion efforts have been strengthened: Through a series of brand activities such as “529 Anorectal Health Day”, “66 Eye Love Day”, and “Travel with Dragon Ball”, we have increased sales of terminal products, focused on key chains, and strengthened marketing planning and promotion. The output of key terminals increased 17% year over year in '23.

Online marketing platform coverage: Expand online global marketing, basically achieve full coverage of the Doukuai platform, and actively promote brand self-broadcasts. The amount of self-broadcasts increased by more than 100% over the same period last year.

Big health business development: In 23 years, the company focused on strategic key areas such as proctology and ophthalmology, and developed and upgraded more than 80 health products. In the anorectal field, we develop and market a series of wet wipe products such as Xiaolan wet toilet paper and big white sanitary wipes. In the field of ophthalmology, Ma Yinglong's Babao series of eye creams has been innovatively developed, and Ma Yinglong's Babao series eye cream has been expanded. Sales revenue of eye health products has increased steadily throughout the year. Among them, Ma Yinglong's Babao series products increased 15% year over year.

Service and commerce: Building an important fulcrum of Ma Yinglong's anorectal industry chain Medical services: 1. Ma Yinglong Anorectal Chain Hospital covers Wuhan, Beijing, Xi'an and Datong.

2. Accelerate the layout and joint construction of anorectal diagnosis and treatment centers. As of 2023, 80 diagnosis and treatment centers have been signed. 3. Build a mobile health cloud platform “Pony Healthcare”. Pharmaceutical business: Pharmaceutical retail and pharmaceutical wholesale go hand in hand.

Profit forecasting and investment advice

We forecast that the company's revenue for 24/25/26 will be 35.7/40.5/4.51 billion yuan, a growth rate of 14%/13%/11%; the net profit for 24/25/26 will be 5.6/6.5/740 million yuan, a growth rate of 25%/17%/14%. The company was given 23 times PE in 2024, with a market capitalization of 12.79 billion yuan and a corresponding target price of 29.7 yuan, maintaining a “buy” rating.

Risk warning: risk of product sales and promotion falling short of expectations; risk of increased industry competition; risk of product price fluctuations; risk of rising costs.