Incidents:

The company released its 2023 annual report and 2024 quarterly report, and achieved revenue of 2,693 million yuan (YoY +15.75%) in 2023; net profit to mother of 368 million yuan (YoY +36.54%). 2024Q1 achieved revenue of 591 million yuan (YoY +17.74%); net profit to mother of 126 million yuan (YoY +63.44%). The company plans to distribute a cash dividend of RMB 3.21 (tax included) to all shareholders for every 10 shares, and use the capital reserve fund to increase 4 shares for every 10 shares.

All business segments go hand in hand and grow steadily

By sector, of 2023 revenue 1), the pharmaceutical formulation segment achieved revenue of 2,236 billion yuan (YoY +15.86%), of which the leading product loxoprofen sodium gel patch achieved revenue of 1,547 billion yuan (YoY +18.70%), and revenue of other oral solid preparations reached 689 million yuan (YoY +9.89%). 2) The raw materials business developed steadily, with APIs achieving revenue of 168 million yuan (YoY +29.87%); the pharmaceutical excipients sector achieved revenue of 176 million yuan (YoY +7.56%).

Sales expense ratio continues to be optimized, and profitability is improving

The company's net sales margin after deduction in 2023 was 12.62% (YOY+1.95pct); the net sales margin after 2024Q1 deduction was 17.96% (YOY+4.22pct), and the profit margin increased significantly. The sales expense rate in 2023 was 48.56% (YoY -3.87pct), and the 2024Q1 sales expense rate dropped to 40.50% (YoY-5.65pct). As collection gradually progresses and the market for topical pharmaceutical products gradually matures, related expenses are reduced + semi-proprietary mode transformation, and the sales rate is expected to be further reduced in the future. According to the company's 2024 financial budget report, net profit without return to mother is expected to increase 30-40% year-on-year in 2024, demonstrating the company's confidence in its profitability.

Sales of loxoprofen sodium gel patches are expected to blossom more, and the medical insurance coverage of ketoprofen gel patches is expected. The leading product, loxoprofen sodium gel patch, is promoting in-hospital clinical+out-of-hospital (offline OTC+ online store merchant side) multi-channel sales: On the one hand, based on in-hospital sales, the market share is steadily increasing. Among them, the collection in the Guangdong Union region has basically been carried out, and the exchange of price for volume has been achieved relatively well. With the subsequent implementation of regional procurement, it is expected to further increase the market share of products and have a positive impact; on the other hand, it is actively promoting the out-of-hospital market. Currently, it accounts for a small share but is rapidly releasing products. By the end of 2023, it has successfully developed a target chain of 280 companies, covering nearly 38,000 stores. In the future, as the company increased investment outside the hospital and built the “Jiuyue” cream brand, sales are worth looking forward to. The new ketoprofen gel patch launched in 2023 was included in the “National Health Insurance Catalogue (2023)” at a price of 8.68 yuan/patch through medical insurance negotiations at the end of the same year, contributing to increased performance. The company is developing more than 15 products in the field of transdermal administration, 7 of which have already been reported for production. It is expected that in the future it will form an echelon of transdermal drug delivery products and move towards leading the way for transdermal administration.

Profit forecasting

We forecast that the company's revenue for 2024-2026 will be RMB 31.10/35.87/4.182 billion, respectively, and net profit to mother will be RMB 513/676/901 million yuan, respectively. 2024-2026 corresponds to the current market capitalization 24/19/14XPE, maintaining a “buy” rating.

Risk warning: R&D risk; risk of deteriorating competitive landscape; policy risk; risk of overdue accounts receivable