Incident: Jiangzhong Pharmaceutical released its 2024 quarterly report. 2024Q1 achieved revenue of 1,227 billion yuan, a year-on-year decrease of 8.74%, and realized net profit of 267 million yuan to mother, an increase of 9.99% over the previous year.

Comment:

The 2023 performance was impressive, and the 24Q1 performance was under pressure in the short term under high base. According to the company's announcement, in 2023, the company achieved operating income of 4.39 billion yuan, an increase of 13.00% over the previous year, achieved net profit of 708 million yuan, an increase of 18.40% over the previous year, and achieved net profit without deduction of 704 million yuan, an increase of 38.97% over the previous year. The performance was impressive. On the revenue side, in 2023, the company's non-prescription drug revenue was 3.0 billion yuan (+16.46% year over year), prescription drug revenue was 664 million yuan (-16.31% year over year), and big health products and other revenue was 650 million yuan (+49.96% year over year). In the first quarter of 2024, the company achieved revenue of 1,227 billion yuan, a year-on-year decrease of 8.74%, and realized net profit of 267 million yuan to mother, an increase of 9.99% over the previous year. According to the first quarterly report, the prescription drug business experienced changes in product structure and a decline in overall revenue scale due to the collection of some products not winning the bid. Big Health and other types of revenue slowed down compared to the same period last year due to some product business development progress, and was also under short-term pressure due to the high performance base.

The revenue of the OTC segment maintained a steady growth trend in 24Q1. According to the company's announcement, in 2024Q1, the non-prescription drug sector had revenue of 1,007 billion yuan (+4.40% year over year), prescription drug business revenue of 105 million yuan (YoY -43.97%), and Big Health products and other revenue of 110 million yuan (-40.33% year over year).

In the over-the-counter medicine sector, sales volume of gastric health tablets increased 6.06% year on year in 2023, sales volume of lactobacillus tablets increased 18.89% year on year, sales volume of compound herbal coral tablets increased 18.23% year on year, and sales volume of Bifidobacteria trifecta enteric capsules (Beifida) increased 37.59% year on year due to increased market demand. We are optimistic about revenue growth in the OTC sector in 2024.

Continue to increase investment in key research and development fields such as modern traditional Chinese medicine. According to the 2023 annual report, in 2023, the company promoted innovation and continued to increase investment in key research and development fields such as modern traditional Chinese medicine, big products, big health, etc., and has now been successfully approved as the National Key Laboratory of Modern Traditional Chinese Medicine. In 2023, the company spent 133 million yuan on R&D (+33.37% YoY). By the end of 2023, “Hatsumoto Yasumoto? “Protein Component Formula for Special Medical Purposes” and “Jiangzhong Chuyuan Full Nutritional Formula Food for Special Medical Purposes”, two full nutritional formula foods for special medical purposes were approved for registration by the State Administration of Market Supervision and Administration. At the same time, “Classic Famous Formula R&D and International Expansion Research”, which was jointly applied for with the University of Macau, was approved as a key project of the Jiangxi Provincial Technological Innovation Guidance Program.

Profit forecast: We expect Jiangzhong Pharmaceutical's revenue for 2024-2026 to be RMB 50.46/56.15/6.370 billion yuan, respectively, and net profit to mother of RMB 8.72/10.06 billion RMB 1,126 million, respectively, and corresponding PE of 19/17/15X, respectively.

Risk factors: market competition risk, market and policy change risk, raw material price and supply risk, collection risk