On April 19, 2024, the company released its 2024 quarterly report. With 2024Q1, the company achieved operating income of 7.294 billion yuan (+14.82%), net profit attributable to mother of 1,364 billion yuan (+18.49%), and net profit after deducting non-return to mother of 1,328 billion yuan (+17.38%).
Investment highlights:
The CHC business achieved rapid growth, and the prescription drug business maintained a healthy development trend. The core CHC health consumer goods business continues to enrich its brand matrix and achieve rapid growth. Continued consumer demand and the continuation of the high incidence of colds contributed to the release of market demand for 999 influenza, and achieved better growth. The increase in the strength of the 999 cold medicine brand has led to the strong rise of other product segments, such as 999 antiviral oral liquid, 999 banyan root granules, and 999 Xiaochaihu granules; the prescription drug business continues to enrich the product line, the Sinopharm business continues to stabilize the foundation for business development, actively responds to the joint procurement of the formula granule business in multiple regions, and the business maintains a healthy development trend.
The integration work of the KPC Group is progressing steadily. Completed the 100-day integration and one-year integration of KPC Group and the company, laying a deep foundation for the three-year integration work. KPC announced a strategic development plan for the next five years (2024-2028), focusing on building two major platforms: chronic disease management with 37 series products as the core and fine Chinese medicine with the “Kunming Traditional Chinese Medicine 1381” series as the core. Kunming Pharmaceutical Group launched the new “777” brand, based on Hesketong oral products, gradually expanding to a full range of product lines such as health management, disease prevention, serious treatment and post-illness rehabilitation, and extended the application of 37 to major health fields such as oral care, beauty and skin care. In terms of channels, it has completed the integration and construction of KPC sales channels in retail and medical systems across the country, and achieved win-win cooperation between 39 commercial channels and key control focusing on key mainstream customers.
Continue to develop or introduce innovative drugs, improved innovative drugs, generic pharmaceuticals, classic famous recipes, etc. As of 2024Q1, the company's traditional Chinese medicine R&D pipeline includes KYAZ01-2011-020 (Kunming Pharmaceutical Group) for treating acute ischemic stroke, which is in phase 2 clinical phase; KYAH02-2020-149 (Kunming Pharmaceutical Group), an improved new drug for treating gout, which is in the IND acceptance stage; more than 30 classic formulations under development in the fields of respiratory, psychosomatics, digestion, etc., and 4 marketing applications have been submitted. Among them, Guiling Shugan granules were approved on March 29.
Cost optimization. 2024Q1, the company achieved a gross profit margin of 53.42% (down 0.65 percentage points) and a net profit margin of 19.92% (up 0.57 percentage points). In terms of expense ratio, sales expense ratio was 21.41% (decrease of 0.69 percentage points), management expense ratio of 4.64% (decrease of 0.22 percentage points), and financial expenses ratio of -0.32% (decrease of 0.21 percentage points). The total of the three cost rates was 25.73% (decrease of 1.12 percentage points).
Profit forecast and investment advice: The company is a leader in the traditional Chinese medicine OTC industry. Many OTC segments are leading the industry. The company continues to consolidate its position in the OTC business industry and achieve steady growth; the integration of Kunming Pharmaceutical continues to advance, the business focuses on the aging circuit, and is expected to achieve steady development with the help of the company's channels. Based on the company's business development and newly released performance reports, we expect the company's revenue for 2024/2025/2026 to be 29.191 billion yuan/33.509 billion yuan/37.284 billion yuan, respectively, and corresponding net profit to mother of 3.39 billion yuan/38.45 billion yuan/4.263 billion yuan, corresponding to EPS of 3.43 yuan/share, 3.89 yuan/share, 4.32 yuan/share, and corresponding PE of 17.39/15.32/13.82 (corresponding to the closing price of April 23, 2024 59.64 yuan). Based on the fact that the company is an OTC leader in traditional Chinese medicine, it has strong variety and brand development capabilities, and maintains a “buy” rating.
Risk factors: risk that the collection of formula granules and proprietary Chinese medicines exceeds expectations, risk that the integration of Chinese medicines does not meet expectations, risk that R&D progress does not meet expectations, etc.