The company released the 2023 Annual Report & 2024 Quarterly Report: In 2023, it achieved operating income of 52,918 billion yuan (+38.30% year over year, same below), net profit attributable to mother of 8.070 billion yuan (+7.04%), after deducting non-return net profit of 7.915 billion yuan (+5.40%). 2023Q4 achieved operating income of 13.646 billion yuan (+30.70%), net profit attributable to mother of 1,540 billion yuan (-20.31%), and net profit of non-return to mother of 1,535 billion yuan (-20.03%).

2024Q1 achieved operating income of 11.396 billion yuan (+2.00%), net profit attributable to mother of 1,458 billion yuan (-28.26%), and net profit of non-return to mother of 1,455 billion yuan (-28.36%).

The rapid growth of nine prices has driven performance growth, and the 2023 results are basically in line with expectations. In terms of proxy products, the quadrivalent HPV vaccine batch issued 10.34 million (-26.27%), the nine-valent HPV vaccine batch issued 36.55 million (+136.16%), the five-valent rotational vaccine batch issued 7.17 million (-18.72%), and the 23-valent pneumonia vaccine batch issued 1.63 million (+59.37%). At the end of 2023, the company had 3,990 sales staff, an increase of 18.79% over the previous year, which helps to dig deeper into the commercial value of products, such as the creation of second growth curves such as blisters.

The profit side is mainly affected by increased investment in R&D, asset depreciation/credit impairment, and changes in product structure. Changes in the company's product structure in 2023 led to a decline in gross margin. The quadrivalent HPV vaccine was affected by the nine-valent age extension. Batch issuance was -26.27% year over year, while batch issuance of the nine-valent HPV vaccine was +136.16% year over year. On the cost side, R&D expenses were $968 million (+13%), and sales expenses were $2,773 million (+24%). In addition, the company lost 353 million yuan in credit impairment (mainly bad debts) and 312 million yuan in asset impairment losses.

Continue to expand the business segment and expand to major biopharmaceutical platforms. In November 2023, the company signed the “Chenan Biotech Intentional Acquisition Agreement”, and the valuation system is expected to be reshaped. Chenan Biotech has formed a clearly hierarchical pipeline layout for GLP-1 similar drugs and insulin analogs. Recombinant simeglutide injections are already in clinical phase III, and they also have pre-clinical research lines such as GLP-1/GIP dual-target receptor agonists and oral simeglutide tablets.

With GSK's strategic cooperation, the shingles vaccine is expected to create a second growth curve. In October 2023, the company reached a cooperation with GSK for the first time. They will jointly commercialize the recombinant herpes zoster vaccine over the next three years, and also reach a preliminary cooperation agreement for the RSV vaccine. GSK recombinant shingles vaccine: It sells well worldwide. Currently, only two domestic products have a good competitive sales pattern. It is expected to become a major single product with a peak domestic sales of over 10 billion yuan, creating the company's second growth curve. RSV vaccine: Currently, only two respiratory syncytial virus (RSV) vaccines have been approved by the US FDA in the world. Among them, GSK's Arexvy was approved for marketing by the FDA in May 2023 and officially obtained clinical approval in China in June of the same year. As demand increases due to the increasing aging of the domestic population, the clinical value and scarcity of the RSV vaccine is expected to continue to be reflected, becoming a potentially important variety driving the company's growth.

Shareholder returns continued to rise, and mid-term dividend plans for 23 and 24 were announced. The company announced the 2023 profit distribution plan. It plans to distribute a cash dividend of 8 yuan (tax included) to all shareholders for every 10 shares, with a dividend rate of 24% and a dividend rate of 2% (calculated at the closing price of 4.23), for a total cash dividend of 1.915 billion yuan.

At the same time, a 2024 mid-term dividend proposal was announced. It is proposed to distribute a cash dividend of not less than 2 yuan (including principal amount) for every 10 shares to all shareholders. Since its listing, the company has implemented cash dividends for 13 consecutive years, and the total amount of cash dividends will reach 6.839 billion yuan.

Profit forecast and valuation: Combined with the 2023 annual report and the 2024 quarterly report, we adjusted the profit forecast. Net profit for 2024-2026 is estimated to be 9.6 billion yuan, 11.5 billion yuan, and 13.6 billion yuan respectively, 19%, 21%, and 18%, respectively. The PE corresponding to the current stock price is 9X, 7X, and 6X, respectively, maintaining the purchase rating.

Risk warning: HPV vaccine sales fell short of expectations, product development progress fell short of expectations, and industry competition intensified.