Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 8.674 billion yuan (+0.42%), net profit attributable to shareholders of listed companies of 1,071 billion yuan (+505.34%), after deducting net profit of 1,181 billion yuan (+60.11%).
The performance of traditional Chinese medicine is stable, the negative effects of chemical drug collection have been fully reflected, and it is expected that the new indications for biopharmaceuticals will reach an inflection point after approval. In 2023, the company's revenue for traditional Chinese medicine was 5.971 billion yuan (+6.62%), with sales volume of the core product compound salvia increasing by 9.89% year on year, achieving price in exchange for volume after collection. We expect revenue to increase by a certain margin in 2023. In the future, with the natural increase in demand for medication for the original indications and the increase brought about by sugar net indications, we believe that compound salvia is expected to maintain steady growth for a long time. Among the other core varieties of traditional Chinese medicine, sales of Nourishing Serum Pills increased by 11.45%, sales of Qi Shenyi Qi Droplets increased by 8.10%, and sales of Injectable Yiqi Fumei increased by 20.25%, indicating that the company's stock varieties still have growth potential under a high base. In 2023, revenue from chemical preparations was 1.03 billion yuan (-5.30%), of which revenue from antineoplastic drugs was 190 million yuan (-39.67%), mainly due to the impact of price reduction in Diqing's collection. We believe that the negative impact has now been fully reflected. Biopharmaceutical revenue is 189 million yuan (-23.47%). Currently, Puyuk has moved from the negotiation catalogue of the national health insurance catalogue to the conventional category B catalogue, and the pressure to reduce prices will be greatly reduced in the future; the latest phase IIIc verification tests for the new indication acute ischemic stroke have all been enrolled, and it is expected to reach an inflection point after approval in the future.
The pipeline of innovative traditional Chinese medicine continues to be rich, and it is about to enter a revenue period. As of the 2023 reporting period, the company's 9 innovative traditional Chinese medicines are in phase III clinical research, including various varieties such as Anshen Drop Pills, Qingshu Granules, Back Pain Relief Tablets, and Antewei Granules. A total of 19 varieties are in Phase II and Phase III clinical trials. The company has mature experience in R&D, clinical transformation and commercial sales of innovative traditional Chinese medicines. We believe that with innovative traditional Chinese medicine, it is expected to become the main source of future growth in the company's performance.
Profit forecasting and valuation. We expect the company's revenue from 2024 to 2026 to be 9.140 billion yuan, 9.730 billion yuan, and 10.354 billion yuan, respectively, with year-on-year growth rates of 5.4%, 6.5% and 6.4%, respectively; net profit to mother will be 1,213 billion yuan, 1,374 billion yuan and 1,519 billion yuan respectively, with year-on-year growth rates of 13.2%, 13.3%, and 10.5%, respectively. Based on the closing price on April 19, the corresponding PE will be 19.0, 16.7, and 15.1 times, respectively, maintaining the “buy” rating.
Risk warning: Innovative drug development progress/sales amount are lower than expected; the price reduction of stock varieties has exceeded expectations due to the impact of collection.