1Q24 revenue and non-net profit increased 36% and 55% year-on-year
The company announced 1Q24 revenue of 1.45 billion yuan, net profit to mother of 350 million yuan, and deducted non-net profit of 330 million yuan (year-on-year increase of 36%, 53%, and 55%), which is in line with the performance forecast. We are optimistic that the continued promotion of the “Four Reforms” will bring about a continuous increase in the company's revenue and net interest rate. We expect the 2024-2026 net profit of 14.4/17.9/2.24 billion yuan (+25/25/ 25% year over year) to give 2024 PE 35x (comparable company average value of 25x, premium based on equity incentives to activate internal vitality and faster performance growth), with a target price of 78.19 yuan, maintaining the “gain” rating.
Ejiao paste and Ejiao cake performed well. The new Ejiao powder and Royal Paddock saw rapid growth. We expect 1Q24 revenue to be +30-40% year over year, with revenue growth of over 20% in 2024-26:1) We expect Ejiao Block 1Q24 revenue to increase in single-digit year-on-year growth (close to 2023). Shipment volume is expected to return to 1200 tons at the end of the 14th Five-Year Plan. 2) We expect revenue growth of 5-10% year-on-year for 2024-26; 2) We expect compound Ejiao 1Q24 revenue to double year-on-year (compared to 2023) speed ), Health insurance restrictions are lifted, high-quality evidence base, and channel coverage is expected to gradually grow to 3 to 5 billion varieties, with revenue growth of more than 40% from 2024 to 26; 3) We expect other products to perform well in 1Q24, with Ejiao cake growing at a year-on-year rate of more than 40% (moving from Beijing, Shandong to the whole country, sprinting 800 to 1 billion yuan in 2025), and Ejiao Powder and Royal Paddock have both doubled. The revenue growth rate of other products is expected to be about 30% from 2024 to 26.
Net interest rate continues to rise and balance sheet is strong
1) 1Q24 gross profit margin 71.8% (year-on-year +1.0pct), mainly due to increased capacity utilization and marginal decline in raw material costs; 2) 1Q24 net interest rate 24.3% (+3.8pct year over year), mainly due to increased gross margin and cost optimization (year-on-year change in sales/management/management rates -1.0pct/-1.3pct/+0.6pct); 3) 1Q24 receivables continued to decline (new low in 19 years), and contract debt of 590 million yuan fell, but was still quite strong Strength ( 4Q23: RMB 8.2 billion); 4) Net cash flow in 1Q24 fell 6% year on year to RMB 640 million, mainly due to factors such as payment of raw materials, taxes, and operating expenses.
Management changes in 2022, new growth points gradually formed in 2023, and equity incentives in 2024 were heartwarming 1) In 2022, Cheng Jie, the new president, entered the company and carried out drastic reforms. Promoting organizational restructuring internally and promoting business reshaping externally. We are optimistic that the company's management will bring a new atmosphere, and it is expected that there will be room for growth in both market share and net interest rates; 2) 6M23 launched the male tonic brand “Royal Paddock”, which focuses on brain and kidney supplements oral liquid, Hailong gum oral liquid, and Kameka Erxian oral liquid, which is expected to gradually contribute to the increase; 3) 1M24 announced a draft equity incentive plan to grant 185 key executives, including core executives, a total share capital of 1,512,000 (accounting for the total share capital) 0.2348%). The assessment indicators include profit growth rate, Multiple dimensions such as ROE and operating profit margin help bind employees' interests and promote long-term development.
Risk warning: changes in pharmacy coordination reimbursement policies, changes in pilot health insurance payment policies.