The company released its 2023 annual report and 2024 quarterly report. The performance maintained steady growth. In particular, the profit side growth rate was impressive. “Su Ling” achieved rapid release after receiving medical insurance renewal and cancellation restrictions, and several new drug research and development projects are also being actively promoted. We expect it to become a new driving force for the company's development. Maintain a buy rating.

Key points to support ratings

Performance has grown steadily, and cost management capabilities have been strengthened. The company achieved operating income of 920 million yuan in 2023, an increase of 6.15% over the previous year, and net profit of 150 million yuan, an increase of 48.24% over the previous year. The performance was basically in line with our expectations. In Q1 2024, we achieved revenue of 199 million yuan, an increase of 20.67% year on year, and net profit of 42 million yuan to mother, an increase of 62.28% year on year. Both the revenue side and the profit side showed a growth trend. In particular, the profit side grew strongly, mainly due to reduced income tax expenses and the increase in sales volume of “Suling”. The company's gross sales margin was 89.02% in 2023, up 3.58 percentage points from 85.44% in 2022, and the ability to control costs was significantly improved.

The main products continue to be released, leading to a steady increase in performance. After “Su Ling” was lifted from medical insurance restrictions and successfully passed the medical insurance renewal, the market access advantage was further expanded, increasing the market share and advantages of “Su Ling”, and achieving a relatively rapid volume. In 2023, Suling's sales volume increased 19.83% year on year. In the future, the company will further enrich evidence-based medical evidence and actively expand the gap market. “Close Interest” has fulfilled its performance promise of not less than 120 million yuan in 2023, and we expect to continue to achieve steady sales growth in the future.

New drug research and development projects are being actively promoted, and it is expected that additional performance will be discovered. The company continues to innovate. In 2023, the company invested 95 million yuan in R&D, the R&D expenditure rate was 10.32%, and the innovation project progressed smoothly.

KC1036 is undergoing clinical research on various indications such as digestive system tumors and thymic tumors, and more than 200 subjects have been enrolled; the phase III clinical trial of Jincao tablets has reached the main research end. In addition, a registration application for a new drug for injectable viper hemagglutinin for dogs has been accepted, and new drug projects such as KC1086 and KC-B173 are being actively promoted. We expect that as innovative results are gradually implemented, it is expected to bring new performance increases to the company.

valuations

Since “Suling” sales were slightly higher than our expectations, we adjusted our profit forecast. The company's net profit for 2024-2026 is expected to be 179 million yuan, 218 million yuan, and 294 million yuan respectively, EPS of 1.12 yuan, 1.36 yuan and 1.84 yuan respectively, and PE of 26.3 times, 21.6 times, and 16.1 times, respectively, maintaining the purchase rating.

The main risks faced by ratings

Market competition increases risks, new drug development progress falls short of expectations, and pharmaceutical industry policy risks.