1Q24 revenue and non-net profit increased 15% and 17% year over year
The company announced 1Q24 revenue of 7.29 billion yuan (+15% yoy), net profit to mother of 1.36 billion yuan (+18% yoy), and net profit after deducting non-net profit of 1.33 billion yuan (+17% yoy). Total profit after credit/asset impairment increased nearly 20% year over year. Based on the rapid growth of the CHC business, the restorative growth of prescription drugs, and the gradual increase in the contribution of Kunming Pharmaceutical, we expect a net profit of 32.6/37.2/4.25 billion yuan (+14%/14% yoy) from 2024 to 26, giving PE 21x in 2024 (average valuation of 18x in the company's ten-year history, premium given considering continued growth in performance), and a target price of 69.20 yuan to maintain the “gain” rating.
Self-diagnosis and treatment: Positive growth under a high base, brand strength continues to strengthen
We expect CHC business 1Q24 revenue to grow rapidly year-on-year, mainly due to the good performance of cold medicines. We expect revenue growth of 10 to 15% from 2024 to 26:1) Brand OTC business growth will be good, the cold category will maintain rapid growth due to strong demand, and skin, gastrointestinal, and orthopedics will maintain high-quality growth. Brand collaboration, category expansion, and diversified marketing are expected to drive continuous growth over 24 to 26 years; 2) The integration of torch/kunyao and the increase in “777” brand potential are expected to drive the market volume of the oral blood plug category; 3) Looking at CH in the long term What is the growth potential of C business Increased share of leading brands, category expansion, channel expansion, and moderate price increases.
Restorative growth in prescription drugs. The annual performance of Kunming Pharmaceutical is expected to be low and high1) We expect prescription drug 1Q24 to be under pressure, mainly due to a high year-on-year base, and is expected to recover throughout the year. After adjustments from 2022 to 2023, 1Q24 is relatively stable, and is expected to grow in double digits throughout the year. Other prescription drug businesses are expected to recover throughout the year as the subsequent base decreases; 2) Kunyao Group's 1Q24 revenue is 1.85 billion yuan (-3% yoy), after deducting non-net profit of 110 million yuan (+9% yoy). The revenue decline is mainly due to active business contraction with Prescription drugs are still recovering. Looking ahead, annual revenue and profit are expected to show low and high quality double-digit growth (the prescription drug policy is expected to be clear in the second quarter, and there are many deductions in 4Q23). In the long run, we will strive to achieve 10 billion yuan in industrial revenue in 2028 through endogenous and epitaxial extension, providing the company with new momentum for performance growth.
Excellent financial quality: contract debt remains high, with a good cash flow statement 1) 1Q24 gross profit margin of 53.4% (-0.6pct yoy), mainly due to the combination of Kunming Pharmaceutical (excluding this influence, steady increase in gross margin), net interest rate 19.9% (+0.6pct yoy), relatively high net interest rate for cold medicines, mainly due to rapid growth; 2) Sales/management/R&D rates were 0.7/-0.2/-0.2pct year-on-year, with sales falling two to one reforms continued to be implemented, and management R&D was relatively stable; 3) Contract 17.24 debt Maintain a comparison of 800 million yuan High level (3Q23 billion yuan, 4Q24 1.65 billion yuan), mainly due to strong downstream demand; 4) 1Q24's other accounts payable fell slightly from month to month but remained at a high level (3Q23 4.77 billion yuan, 4Q24 4.76 billion yuan); 5) 1Q24 operating cash increased 16% year over year to 6.80 billion yuan, with cash income ratio of 93% year on year, relatively stable year on year.
Risk warning: sustainable growth of the cold category, progress and extent of KMP's integration.