Revenue and profit increased steadily, and the eye drops business grew strongly. Recently, the company released its annual report for the year 23, and the steady increase in revenue and net profit is in line with expectations. In 2023, the company achieved operating income of 1,468 million yuan (YoY +17.42%), net profit to mother of 240 million yuan (YoY +13.39%), and net profit of non-return to mother of 240 million yuan (+15.59% YoY). In terms of products, gels/eye creams achieved operating revenue of 374 million yuan (+18.37% year over year); rapid release of ciclosporin and other core products drove strong growth in eye drops, achieving revenue of 663 million yuan (+47.86% year over year); medical services achieved revenue of 351 million yuan (-13.49% year over year);

The company has a rich product line, and low concentration atropine was approved for the first time. Currently, the company has a total of 57 ophthalmic drug approval numbers. Of these, 35 products are included in the medical insurance catalogue and 6 products are included in the national essential drugs catalogue. The expansion of the product line is driving steady growth in the company's performance. In March 2024, the company's atropine sulphate eye drops (0.01%) obtained the “Drug Registration Certificate” issued by the State Drug Administration to slow the progression of myopia in children aged 6 to 12 with a spherical degree of -1.00D to -4.00D (astigmatism ≤ 1.50D, refractive error ≤ 1.50D). Currently, there are no similar products with myopia-related indications on the market in China. The company's products have a first-mover advantage. The overall myopia rate of children and adolescents in China in 2022 was 53.6%, and the product launch volume is worth looking forward to;

Investment in R&D continues to increase, and shareholder returns are increasing. In 2023, the company continued to increase R&D investment. The annual R&D expenses were 167 million yuan, an increase of 14.89% over the previous year. The number of R&D personnel increased to 239, an increase of 25.13% over the previous year. Currently, the company and its subsidiaries have 49 invention patents, and R&D capabilities have been further strengthened. The company attaches importance to shareholder returns. It plans to distribute a cash dividend of 30.00 yuan (tax included) for every 10 shares to all shareholders based on the current total share capital of 124,589,194 shares, and distribute a total cash dividend of 374 million yuan (tax included); use the capital reserve fund to increase 4 shares for every 10 shares to all shareholders without bonus shares.

According to the company's 23 annual report, we raised the company's 24-25 revenue forecast and gross profit margin, predicting the company's 24-26 net profit of 5.84/8.81/933 million yuan (the 24-25 forecast was 514/715 million yuan), and the corresponding projected EPS was 4.69/7.07/7.49 yuan. We made an absolute valuation of the company's free cash flow, and predicted a reasonable market value of 35.895 billion yuan, and the corresponding target price was 288.11 yuan, maintaining the “gain” rating.

Risk warning

The risk that R&D progress falls short of expectations, the risk of new product releases falling short of expectations, and the risk of drug fee control policies exceeding expectations.