The results for the first quarter of 2024 are in line with our expectations
The company announced results for the first quarter of 2024: operating income of 22.95 billion yuan, up 6.09% year on year; net profit to mother of 1.96 billion yuan, up 2.59% year on year, corresponding to earnings per share of 1.204 yuan; net profit without return to mother increased 0.33% year on year to RMB 1.83 billion, in line with our expectations.
Development trends
The sales expense ratio and management expense ratio declined year-on-year. In the first quarter of 2024, the company's gross margin was 22.1%, down 1.1 percentage points year on year; sales expenses ratio was 8.2%, down 0.4 percentage points year on year; management expenses ratio was 2.8%, down 0.1 percentage point year on year; R&D expenses ratio was 0.8%, which was basically the same year on year. According to the announcement, the company has achieved cost reduction and efficiency through resource integration, and has carried out resource integration in various aspects such as scientific research, branding, advertising, procurement, sales, etc.; among them, the sales company has integrated the sales resources of four enterprises as a pilot project for the integration of the company's sales business; in the future, the company will combine the brands and product characteristics of each subsidiary company and gradually advance according to the actual situation.
The overseas business layout continues to advance. According to the announcement, in the health sector, the company is vigorously promoting overseas market layout by actively participating in international exhibitions, speeding up localization and revision of overseas products, and continuing to promote trademark registration. According to the announcement, the company will actively promote overseas registration of products and promote marketing and sales in countries and regions where products have been registered to help the company and the Danan Pharmaceutical sector develop overseas markets.
We believe that the company is expected to achieve high-quality development. According to the company announcement: 1) Danan Pharmaceutical Division: The company will continue to actively participate in national collection or volume procurement of inter-provincial pharmaceutical alliances, while vigorously promoting marketing integration and model innovation, promoting “1+4" marketing integration to promote the growth of OTC markets, terminals and e-commerce markets; 2) Big Health Sector: The company will vigorously promote the development and sales of new products such as Zingji and Lixiaoji series products according to the plan, and strive to raise market awareness of new products and gradually cultivate them into important products in the health sector; 3) Big Business Sector: Guangzhou Pharmaceutical will continue to promote investment cooperation in accordance with the plan, Accelerate the distribution of key regions outside the province and the layout of prefecture-level cities within the province.
Profit forecasting and valuation
We keep our 2024/2025 EPS forecast of 2.67 yuan and 2.86 yuan unchanged. The current A share price corresponds to the price-earnings ratio of 11.7 times/10.9 times in 2024/2025, and the price of H shares corresponds to 7.0 times/6.2 times the price-earnings ratio in 2024/2025. We keep A-shares outperforming the industry rating and target price of 36.1 yuan, corresponding to the price-earnings ratio of 13.5 times/12.6 times in 2024/2025, with room for an increase of 15.9% compared to the current stock price. We keep H shares outperforming the industry rating and target price of HK$26, corresponding to a price-earnings ratio of 8.7 times/7.7 times in 2024/2025, with room for an increase of 24.1% from the current stock price.
risks
Competition in the consumer market is fierce, and the price of Danan medicine is under pressure.