1Q24 results were higher than our expectations
The company announced 1Q24 results: revenue of 7.294 billion yuan (YoY +14.82%) and net profit to mother of 1,364 billion yuan (YoY +18.49%), slightly higher than our expectations, mainly due to the rapid growth of revenue from 1Q24 core products.
Development trends
Endogenous revenue and profit growth was impressive in 1Q24. According to the announcement, on January 19, 2023, the company obtained control of KPC Group and realized the merger. 1Q24 KPC Group's revenue was 1,853 billion yuan, down 3.01% year on year, and net profit to mother was 119 million yuan, down 9.41% year on year. We believe that the main business of 399 Endogenics maintained a good growth trend in the first quarter, mainly due to increased demand for cold products and the continuous enrichment of the company's categories.
The overall cost rate has been declining steadily. 1Q24's consolidated gross profit margin was 53.4%, a year-on-year decrease of 0.65ppt. The sales expense ratio was 21.4%, down 0.69ppt year on year, and the management expense ratio was 4.6%, down 0.22ppt; the financial expense ratio was -0.3%, down 0.21ppt from year on year. Mainly due to the increase in interest income, the R&D expense ratio was 1.9%, down 0.2ppt year on year. The company's 1Q24 operating cash inflow was 787 million yuan, an increase of 161.2% over the previous year, mainly due to strong demand for core products.
The category of cold and cough relief is gradually expanding into the field of general breathing. After creating the strong single product 999 Flu Spirit, the company's cold category has successively added products such as 999 cold clean-up granules, 999 banyan root granules, 999 antiviral oral solution, 999 Xiaochaihu granules, 999 powerful loquat lotion, 999 ibuprofen suspension, and 999 paracetaminophen oral solution to the category in recent years. In addition, the company's product pipeline has been expanded to areas such as asthma and COPD.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 17.5 times/15.2 times. Maintaining an outperforming industry rating, considering that the company's core product market position is stable and the pipeline is rich, we raised our target price by 8.5% yuan to 68.14 yuan, corresponding to 20.1 times/17.5 times P/E in 2024/2025, which is 15% higher than the current stock price.
risks
The expansion of new categories fell short of expectations, the integration of Kunyao fell short of expectations, and the price of upstream raw materials increased.