Incident: On April 26, 2024, the company released its 2023 annual report: in 2023, it achieved operating income of 920 million yuan, up 6.15% year on year; net profit to mother of 150 million yuan, up 48.24% year on year; deducted non-net profit of 127 million yuan, up 42.51% year on year; net operating cash flow of 199 million yuan, up 65.83% year on year.

On the same day, the company released its report for the first quarter of 2024: the first quarter of 2024 achieved operating income of 199 million yuan, up 20.67% year on year; net profit to mother of 0.42 million yuan, up 62.28% year on year; net profit after deducting non-net profit of 40 million yuan, up 74.63% year on year; and net operating cash flow of 45 million yuan, up 200.00% year on year.

Suling Medical Insurance Renewal+Payment Limits helped the company's performance grow steadily.

The company's first-class new drug, viburnum coagulase (Suling), has been used clinically for many years. In 2023, the contract was successfully renewed through medical insurance negotiations, and the restriction of “limited second-line medication for treatment of hemorrhagic diseases, no payment for prevention and use” was removed. In 2023, sales volume increased 19.83% year on year, achieving revenue of 613 million yuan, an increase of 13.89% year on year, contributing to the steady growth of the company's performance.

The pipeline of key innovative drugs is progressing smoothly, speeding up the filling of unmet clinical needs.

KC1036, a Class 1.1 innovative chemical developed independently by the company, can achieve anti-tumor activity by inhibiting multiple targets such as AXL and VEGFR2. Phase III clinical studies of KC1036 for advanced esophageal squamous cell carcinoma and phase II clinical studies for patients with advanced thymic tumors are progressing smoothly.

In March 2024, the phase III clinical trial of the company's Class 1.2 innovative traditional Chinese medicine Jincao tablets (used to treat chronic pelvic pain as a sequelae of pelvic inflammatory diseases) reached the main research end. According to statistical analysis results, the pain loss rate of Jincao tablets reached the end of the main study during the 12-week treatment period. The safety and tolerability of Jincao tablets were good, and the incidence of adverse events was low.

Costs decreased, gross margin increased, and the cost ratio remained stable during the period

In 2023, the cost of the company's main products, Suling and Mi, was 93 million yuan, down 14.65% year on year (the main interest rate was changed from air transportation to shipping to reduce costs). The company's comprehensive gross margin increased 3.84 pcts to 89.02% year over year; sales expenses increased 2.55 pcts to 51.37% year over year; management expenses were 111 million yuan, and the management expense ratio increased 0.18 pct to 12.03% year on year; R&D expenses were 95 million yuan, and R&D expenses increased year-on-year. 0.31pct to 10.32%; the financial expense ratio increased 0.81 pct to -1.25% year on year; under the combined influence, the company's overall net interest rate increased 6.10 pct to 20.39% year on year.

In the first quarter of 2024, the company's comprehensive gross margin decreased by 0.62 pct to 88.73% year on year; sales expense ratio decreased 0.36 pct to 45.40% year on year; management expense ratio increased 0.63 pct to 13.13% year over year; R&D expense ratio decreased 7.19 pct to 5.68% year on year; financial expense ratio increased 0.60 pct to -0.53% year on year; under the combined influence, the company's overall net profit margin increased 5.42 pct to 23.51% year on year.

Profit forecast and investment rating: Suling Health Insurance's payment limit is expected to maintain rapid growth in 2024. The innovative drug pipeline will gradually enter the cashout period, and the company's overall performance will continue to grow steadily.

We expect the company's revenue in 2024-2026 to be 1,028 billion yuan/1,145 million yuan/1,823 billion yuan, respectively, with year-on-year growth rates of 11.77%/11.32%/59.25%, net profit to mother of 165 million yuan/187 million yuan/319 million yuan, respectively, with year-on-year growth rates of 9.85%/13.03%/70.88%, EPS 1.03 yuan/1.17 yuan/2.00 yuan respectively. The current stock price corresponds to 2024-2026 PE 29 x/25x/15x, maintaining the “buy” rating.

Risk warning: Competition for other types of hemostatic drugs; the company's progress in developing innovative anti-tumor drugs falls short of expectations; the company's sales capacity falls short of expectations after launching new products.