Incidents:

Zuoli Pharmaceutical released the 2023 annual report and the report for the first quarter of 2024. Net income for 2023 was 1,942 million yuan, up 7.61% year on year; net profit after return to mother was 383 million yuan, up 40.27% year on year; net profit after deducted from non-return mother was 374 million yuan, up 41.14% year on year; revenue for the first quarter of 2024 was 673 million yuan, up 35.75% year on year; net profit without return to mother was 144 million yuan, year on year An increase of 50.01%.

Analytical reviews

The performance in '23 and 24Q1 was outstanding, the cost ratio continued to be optimized, and profitability continued to increase. The company's performance was outstanding in '23, mainly because the company's three core products, Wuling tablets, and Lingze tablets, have the advantage of being a national essential drug catalogue product, and continued to strengthen market expansion.

Expense rates have been continuously optimized for 23 years, and net interest rate optimization results have been outstanding. In 2023, the company's gross sales margin was 68.42%, down 2.15 percentage points; the net sales margin was 20.12%, up 4.30 percentage points; the sales expense ratio was 40.03%, down 6.00 percentage points; the management expenses ratio was 4.98%, down 0.04 percentage points; the R&D expenses ratio was 4.09%, up 0.52 percentage points; and the financial expenses ratio was -0.73%, down 1.01 percentage points year on year. The scale effect of the company's sales growth has gradually become prominent, the cost ratio has gradually declined, and profitability has continued to increase.

Meanwhile, the 23Q4 and 24Q1 companies' performance both maintained rapid growth. According to calculations, 2023Q4 revenue was 477 million yuan, up 3.63% year on year; net profit to mother was 96 million yuan, up 39.14% year on year; net profit after deducting non-return to mother was 93 million yuan, up 38.37% year on year.

The core product, the Wuling series Q4, is recovering at an accelerated pace. It is expected to maintain the trend in 2024. By product, the Wuling series: 23 billion yuan in revenue, up 12.42% year on year, and the Q4 growth rate accelerated (the Wuling series increased 8.73% year on year in the first three quarters); 24Q1 Wuling series revenue increased 35.30% year on year. Among them, Wuling capsules sold a total of 24.03 million boxes in 23 years (36 capsules/box off), up 17.51% year on year, and sales amount increased 9.12% year on year; sales volume and sales amount of 24Q1 Wuling capsules increased 43.86% and 37.25% year on year, respectively. It is expected that the Jiangsu and Beijing-Tianjin-Hebei 3+N alliances will be collected and implemented in '24. If prices are maintained, the number of boxes will be further accelerated, and the performance is expected to further improve.

In 23 years, Lingze tablets sold a total of 2.89 million boxes (48 capsules/box off), up 31.48% year on year, sales amount was 31.96% year on year. The sales volume and sales amount of 24Q1 Lingze tablets increased 25.19% and 24.33%, respectively; the product is expected to be promoted at an accelerated pace in 24 years and is expected to maintain rapid growth.

Bering Film Series: Revenue of 23 million yuan, down 21.23% year on year. Bering Film sold 6.52 million boxes in 23 years, up 0.32% year on year (down 8.95% year on year in the first three quarters); 24Q1 sales volume and sales amount increased 7.11% year on year and decreased 18.98% year on year, respectively. Since January 2024, the medical insurance coverage of Bailing tablets has been relaxed. They can be widely used in patients with chronic bronchitis and chronic renal insufficiency to provide new increases. At the same time, as the first homologous drug of the same name approved in China, Bailing Capsule was approved on December 29, 2023. Continued marketing for 24 years is expected to bring new volume.

Chinese medicine tablet series: Revenue of 461 million yuan in 23 years, up 22.01% year on year, and 25.50% year on year in 24Q1. Traditional Chinese medicine formula granules: Revenue of 23 million yuan, a year-on-year decrease of 29.36%. In 24Q1, with the increase in national standards and provincial standard filings for formula granules, revenue of traditional Chinese medicine formula granules increased by 332.99% year on year. 24Q1 added Zoli Pharmaceuticals commercial sales revenue of 25.9853 million yuan.

Investment advice

The company's core product, Wuling capsules, are being released rapidly, and profitability growth is prominent. We maintained our previous profit forecast and added a 26-year forecast. We expect the company's 24-26 revenue to be 23.37/2851/3.439 billion yuan, respectively, up 20.3%/22.0%/20.6% year on year; net profit to mother will be 5.05/6.36/ 801 billion yuan, respectively, up 31.9%/26.0%/25.9% year on year, respectively, and the corresponding valuation is 19X/15X/12X. We are optimistic about the company's long-term future development and maintain a “buy” rating.

Risk warning

Risk of changes in industry policies; drug development risks, etc.