Incident: The company recently released the 2023 annual report and the 2024 first quarter report. In 2023, the company achieved revenue of 9.655 billion yuan, an increase of 7.32%; net profit to mother was 2,823 billion yuan, an increase of 30.04% year on year; and non-net profit deducted from mother was 2,692 billion yuan, an increase of 32.72% year on year. In 2024, Q1 achieved revenue of 2.03 billion yuan, up 0.60% year on year; net profit to mother of 845 million yuan, up 24.90% year on year; deducted non-net profit of 726 million yuan, up 19.83% year on year.

Core varieties are growing steadily, and second-tier products continue to be released: The main reasons for the company's sales revenue growth in 2023:1) Market demand for the main varieties Pu Di Lan anti-inflammatory oral liquid and children's black pepper clean-up granules increased over the same period; 2) The company actively strengthened the expansion of sales channels and actively promoted the development of empty markets and potential markets to form new increases; 3) Sales of second-tier respiratory products, including Sanao tablets and Huanglong cough tablets, increased by more than 10% year-on-year.

The advantages of the sales platform are outstanding, and the profit growth rate is outstanding: in terms of sales channels, the company actively expanded retail channels outside the hospital, and achieved positive results in controlling sales expenses. The sales expenses rate for the full year of 2023 was 42% (down 4 pcts year on year), and the 24Q1 sales expenses rate was 41% (down 5 pct year on year), reflecting the advantages of sales platformization, bringing impressive profit side growth performance.

Increased dividend rate to actively give back to shareholders: The company disclosed the dividend policy: in 2023, the company plans to pay 13 yuan in dividends for every 10 shares, with a total cash dividend amount of 1,197 billion yuan (tax included). The dividend amount accounts for 43% of net profit, corresponding dividend rate of 4.14% (3.23% for the same period last year).

Investment advice: We expect the company to achieve operating income of 102.91/115.44/12.236 billion yuan and net profit to mother of 31.07/35.00/38.90 billion yuan in 2024-2026. The corresponding PE was 12.29/10.91/9.82 times, respectively, maintaining the “buy” rating.

Risk warning: risk of price reduction in collection, risk of sales promotion falling short of expectations, industry policy risk.