In the first quarter of 2024, the company's revenue was 7.294 billion yuan, up 14.82% year on year; net profit to mother was 1,364 billion yuan, up 18.49% year on year; net profit after deducting non-return to mother was 1,328 billion yuan, up 17.38% year on year; excluding the influence of Kunming Pharmaceutical, the company achieved an 8.4% increase in revenue.
Cold medicine has driven CHC to achieve rapid growth, and the Sinopharm business has resumed healthy development. Benefiting from the continued high incidence of respiratory cold diseases and strong consumer demand in the first quarter of 2024, the company's CHC cold medicine business achieved good growth despite a high base last year. The brand influence and market recognition of the main brand 999 Cold Spirit continues to rise, while driving the growth of other second- and third-tier respiratory cold varieties. Varieties such as 999 antiviral oral liquid, 999 banyan root granules, and 999 Xiaochaihu granules have all achieved good growth. In other CHC categories, the company has further enriched its product matrix, and the product categories have been improved. After experiencing adjustments to the Sinopharm business in 2023, the Sinopharm business achieved good restorative growth in Q1 of 2024. In particular, formula granules used collection to open up an empty market and maintain a healthy development trend.
The one-year integration of Kunming Pharmaceutical was successfully completed, laying the foundation for the five-year strategy. In 2024, Q1 successfully achieved one-year integration with KPC. In the first quarter, KPC's business achieved revenue of 1,853 billion yuan, a year-on-year decrease of 3.01%, and net profit to mother of 119 million yuan, a year-on-year decrease of 9.41%. In the first quarter, Kunming Pharmaceutical officially launched the “777” brand, gradually expanding a full 37 series product line for health management, disease prevention, serious treatment and rehabilitation based on Hesetong Oral. On the channel side, Kunyao Commercial Road was empowered by 39 commercial roads, and the “Kunming Traditional Chinese Medicine 1381” series of core products achieved rapid growth. Among them, Shenling's Spleen and Stomach Granules increased 48.42% year on year, Shu Gan Granules increased 81.72% year on year, and Fragrance Sand Flat Stomach Granules increased 26.03% year on year.
The gross margin declined slightly due to raw material costs, and the net profit margin for improving quality and efficiency increased. In 2024, the company achieved a gross margin of 53.42%, a year-on-year decrease of 0.66pct, mainly due to factors such as rising costs of proprietary Chinese medicines, while both sales expenses and management expense ratios continued to decline, causing the company to achieve a net profit margin of 19.92%, an increase of 0.57 pct year-on-year.
Maintain a “Highly Recommended” investment rating. We continue to be optimistic about the brand and channel advantages of the company's CHC business. The prescription drug business is also expected to achieve restorative development after undergoing adjustments. It is expected that in 2024-2026, the company will achieve operating income of 290.7/325.8/36.26 billion yuan, up 17.5%/12.1%/11.3% year on year, and net profit to mother of 32.6/37.7/4.40 billion yuan, corresponding PE is 18/16/13 times, maintaining a “highly recommended” investment rating.
Risk warning: policy changes, product collection, rising raw material prices, mergers and acquisitions falling short of expectations, etc.