Introduction to this report:
The company released its 2024 quarterly report. The performance slightly exceeded expectations. Demand for core products was strong, fee control capabilities were further optimized, and revenue and profit achieved steady growth. Combined with the promotion of the integration of Chinese medicines, future performance is expected to continue to grow steadily.
Key points of investment:
Maintain an “Overweight” rating. The company released its 2024 quarterly report, achieving operating income of 7.294 billion yuan (+14.8%), net profit to mother of 1,364 billion yuan (+18.5%), after deducting non-net profit of 1,328 billion yuan (+17.4%). The performance slightly exceeded expectations. The high growth rate is mainly due to: ① and new volume brought in by Kunming Pharmaceutical; ② CHC revenue continues to grow steadily. Taking into account the above factors and the rapid expansion of performance after the acceleration of the integration of Chinese medicines, the 2024-25 EPS was maintained at 3.41/3.79 yuan, the 26-year EPS was raised to 4.11 yuan (originally 3.85 yuan), the 24-year PE 21X was given as a reference to the industry average, and the target price was raised to 71.61 yuan, maintaining the “gain” rating.
Demand for core cold categories is strong, driving continued revenue growth. After excluding Kunming Pharmaceutical, revenue of 5.441 billion yuan (+8.3%) was achieved in 24Q1. It is estimated that the CHC business achieved rapid growth mainly due to the continuation of the high incidence of colds boosting the continuous release of market demand for 999 influenza and driving sales in the second- and third-tier segments. It is expected that the brand effect of the CHC business will gradually increase; ② the prescription drug business will continue to enrich the product line, focusing on product value discovery and improving competitiveness; ③ the integration of Chinese medicine will continue to advance; and annual revenue is expected to grow by double digits. ①
The ability to control expenses was optimized, and the cost rate declined markedly during the period. The 24Q1 sales expense ratio for a single quarter was 21.41%, -0.7pct/-14.4pct year-over-year, respectively, the lowest level in a single quarter in nearly ten years. It is expected to be mainly due to increased product brand effects and reduced marginal maintenance costs. The management/R&D cost rates were 4.64%/1.88% respectively, an average of -0.2 pct year over year. The 24Q1 profit growth rate is still significantly higher than the revenue growth rate after excluding Kunming Pharmaceutical, and optimization of fee control capabilities is expected to further drive profit growth in the future.
Catalysts: rapid growth in sales of core categories, rapid promotion of marketing channels, acceleration of the integration of Chinese medicines
Risk warning: risk of cost fluctuations, risk of collection policies, risk of product sales falling short of expectations