Key points of investment
Incident: Donga Ejiao released its 2024 quarterly report. During the reporting period, it achieved revenue of 1,453 billion yuan (YoY +35.95%), net profit attributable to mother of 353 million yuan (YoY +53.43%), and net profit of 329 million yuan (YoY +54.79%); performance exceeded expectations.
Business performance has been improving steadily. 24Q1 closely focuses on the development theme of “growth and quality” and deepens the implementation of the four reshapings — “value reshaping, business reshaping, organizational reshaping, and spiritual reshaping”. Firmly establish the top brand position of “Nourish Guobao Donga Ejiao”, give the brand temperature, consolidate brand height, and continue to promote brand renewal and upgrading; comprehensively establish a “two-wheel drive” growth model for pharmaceuticals+health consumer goods, build brand barriers based on digital marketing and integrated marketing, continue to consolidate the value leadership of Donga Ejiao block, build a large variety of compound Ejiao paste, and expand the “Peach Blossom Princess” instant nutrition brand number one brand; further clarify the “Royal Palace 1619” men's nourishing brand positioning, and promote three-dimensional brand value transmission Incremental; system layout “one center, three highlands” R&D system, technological innovation drive business growth, and steady improvement in business performance.
Profitability increased significantly. In 24Q1, the company's net interest rate after deduction was 22.61%, +2.75pct year-on-year. The gross margin was 71.79%, +1.00pct; the sales/management/R&D expenses ratio was 38.86%/4.59%/2.70%, -0.97/-1.26/+0.63pct year over year.
Operational efficiency continues to improve. As of the end of 24Q1, the company's accounts receivable were $187 million, +196.18% month-on-month, mainly due to delivery using credit lines in the current period; notes receivable were $190 million, or -49.41% month-on-month, mainly due to bill receivable endorsements and collection; accounts receivable turnover was only 7.73 days, an increase of 25.93 days over the previous year; contract liabilities amounted to 592 million yuan, mainly the obligation to transfer goods to customers due to receipt or receipt of customer consideration; The ratio was 112.37%.
Maintain a “buy” rating. The estimated net profit for 2024-2026 is 15.22/18.79/230 billion yuan, up 32.22%/23.51%/22.37% year-on-year, and EPS is 2.36/2.92/3.57 yuan, corresponding to 28.19x/22.82x/18.65x. Considering that the company is a long-established leader in nourishing traditional Chinese medicine, and the possibility of price reduction in centralized procurement of core products is low, the first phase of the restricted stock incentive plan (draft) has stimulated management's motivation. The results of the reform have been remarkable, and the “buy” rating has been maintained.
Risk warning: risk of policy adjustments, risk of cost fluctuations, second-tier product release falling short of expectations.