The results were in line with expectations. Based on high-base performance in the first quarter, the company released the 2023 annual report and the 2024 quarterly report: in 2023, the company achieved revenue of 2.112 billion yuan (+10.81%), net profit to mother of 421 million yuan (+27.85%), deducting non-net profit of 382 million yuan (+71.92%). The main reasons for the rapid growth of the company's profit side are:

1. The company continues to promote marketing innovation, seize market opportunities, increase sales efforts, and achieve steady growth in the company's performance; 2. The company actively carries out lean management, energy saving and consumption reduction projects to improve management efficiency and effectively control costs; 3. The amortization of management expenses confirmed by the company's first phase of the employee stock ownership plan decreased compared to the same period last year; 4. The biopharmaceutical sector was sorted out and optimized to achieve a certain degree of loss reduction.

In the first quarter of 2024, the company achieved operating income of 483 million yuan (-32.59%), net profit attributable to mother of 100 million yuan (-40.90%), and net profit not attributable to mother of 88 million yuan (-46.57%).

The decline in first-quarter results was mainly based on the high performance base brought about by rapid growth in demand for the company's products after the release of the epidemic in the first quarter of 2023.

Profitability is steadily improving, controlling costs, improving quality and efficiency

On a quarterly basis, in 2023, Q1-Q4 companies achieved operating income of 7.16 (+38.51%), 4.78 (-0.07%), 4.38 (-1.33%), and 5.40 (+3.66%) billion yuan, respectively, and realized net profit of 1.69 (+40.96%), 2.10 (+15.01%), 0.17 (-19.16%), and 0.24 (+374.49%) billion yuan, respectively, after deducting non-return net profit of 1.64 (+42.86%) and 2.03 (+15.48%) , 0.10 (-34.45%), 0.06 (+107.41%) billion yuan.

In terms of profitability, the company's profitability increased steadily in 2023. In 2023, the company's gross sales margin was 73.00% (+2.02pct), and the net sales margin was 19.40% (+2.59pct).

The company's gross sales margin for the first quarter of 2024 was 74.24% (-0.62pct), and the net sales margin was 20.73% (-2.91 pct).

Judging from the cost ratio, the company's sales expenses rate in 2023 was 33.06% (+5.59pct), the management expense ratio was 9.34% (-4.66pct), and the R&D expenses rate was 7.28% (-3.79pct).

The financial expense ratio was -0.66% (+0.09pct). The sales expense ratio for the first quarter of 2024 was 32.13% (+6.72pct), the management expense ratio was 8.03% (+0.82pct), and the R&D expense ratio was 6.86% (-3.36pct). The financial expense ratio was -0.31% (-1.04pct).

The gross margin of the industrial sector continues to rise, and the biopharmaceutical and health sector is progressing steadily

By sector, in 2023, the industrial sector had revenue of 2,098 billion yuan (+10.59%), accounting for 96.61% (-0.19pct), gross profit margin of 75.88% (+2.27pct); the commercial distribution sector had revenue of 0.46 billion yuan (-5.45%), accounting for 2.13% (-0.36pct) of revenue, and a gross profit margin of 35.47% (-4.45pct).

While expanding and strengthening the main traditional Chinese medicine industry, the biopharmaceutical and health industry sector is also moving forward steadily with two-wheel drive. Baochuan Biotech is actively strengthening platform process development. In 2023, Baochuan has a total of 18 research projects, including 7 clinical trials in progress, 5 new drug discovery phase projects, and 6 platform construction projects. Baifan Biotech's CDMO project was developed in an orderly manner, laying out the entire monoclonal antibody industry chain, and completed 7 project deliveries and 8 projects launched in 2023.

Profit forecasting and investment advice

The company's revenue for 2024-2026 is estimated to be 23.89/26.39/2,916 billion yuan, and net profit to mother is 5.07/5.61 billion yuan, respectively. The PE corresponding to the current stock price is 16.02/14.47/13.08 times, respectively. Considering that the company's first-tier varieties will open up the in-hospital market in the future, second-tier and third-tier varieties are growing rapidly, and there is plenty of room for improvement, the biopharmaceutical sector is expected to further reduce losses and maintain a “buy” rating.

Risk warning:

Risk of channel promotion falling short of expectations; risk of drug development failure.