The 2023 results are under pressure, and growth in the first quarter report gradually resumed

The company released its 2023 annual report and 2024 quarterly report: 2023 operating income of 784 million yuan (-5.39%), net profit of 255 million yuan (-8.39%), net profit of 227 million yuan (-10.45%) after deducting non-net profit of 227 million yuan (-10.45%), and net operating cash flow of 315 million yuan (-7.68%). Corresponds to 2023Q4 operating income of 242 million yuan (-24.80%), net profit of 115 million yuan (-22.03%) to mother, deducting non-net profit of 108 million yuan (-24.05%).

2024Q1 had operating income of 221 million yuan (+7.15%), net profit attributable to mother of 77 million yuan (+23.19%), net non-net profit of 68 million yuan (+22.30%), and net operating cash flow of 49 million yuan (-37.49%). The reason for the high profit side increase is mainly due to the withdrawal of plot 79 in Gongshu District of Hangzhou to receive revenue of 5.6744 million yuan, which affected the 9.06% year-on-year growth rate of net profit attributable to shareholders of listed companies.

Profitability has room to be improved, and cost control capabilities are strengthened

By product, revenue from Ganoderma lucidum spore powder products in 2023 was 534 million yuan (-7.92%), and revenue from dendrobium officinale products was 127 million yuan (-2.03%).

In terms of gross margin, the company's gross margin in 2023 was 82.72% (-1.69pct). In terms of breakdown, the gross margin of Ganoderma lucidum spore powder products was 88.68% (-0.87pct), the gross margin of other products was 74.71% (-4.25pct), and the gross margin of dendrobium officinale products was 78.64% (-0.08pct). 2024Q1 gross margin was 82.91% (-0.62pct).

Looking at the cost ratio, the 2023 sales expense ratio was 40.39% (+1.87pct), the management expense ratio was 11.09% (+0.74pct), the R&D expenses rate was 6.33% (+0.57pct), and the financial expenses ratio was -2.94% (-1.48pct). The 2024Q1 sales expense ratio is 41.14% (-1.91pct), the management expense ratio is 9.53% (-0.19pct), the R&D expenses rate is 5.17% (-0.37pct), and the financial expenses ratio is -4.82% (-2.65pct).

Sales channel expansion is progressing steadily, and diversified marketing continues to open up space for channel growth

By region, the company's revenue in Zhejiang Province in 2023 was 478 million yuan, down 8.49% year on year, with a gross profit margin of 83.99%; revenue outside Zhejiang Province was 80.2679 million yuan, down 17.89% year on year, gross profit margin 85.02%; Internet revenue was 212 million yuan, up 7.35% year on year, and gross profit margin 85.19%.

On the basis of continuing to adhere to the marketing model of “famous doctors, famous drugs, famous stores” and the “old brands, hospitals, and supermarkets” trinity marketing strategy, the company strives to expand the market outside the province and achieve the company's multi-regional development by increasing community promotion efforts, increasing the investment efforts of urban distributors of spore powder tablets across the country.

Profit forecasts and investment advice

The company's revenue for 2024-2026 is estimated to be 8.64, 9.53, and 1,055 million yuan, respectively, and net profit to mother is 3.06, 3.52, and 406 million yuan respectively. The current stock price corresponds to PE of 16.66, 14.46, and 12.53 times, respectively. The company's products have clinical value, and there is plenty of room to grow in the future to expand markets outside the province. It is covered for the first time, giving it a “buy” rating.

Risk warning:

Channel promotion falls short of anticipated risk.