Incidents:

On April 25, 2024, Taiji Group released its 2024 quarterly report: in the first quarter of 2024, the company achieved operating income of 4.208 billion yuan (-4.96% YoY), net profit to mother of 247 million yuan (+5.05% YoY), and net profit of 218 million yuan (-8.47% YoY).

Investment highlights:

Industrial revenue declined in the first quarter of 2024 under a high base, and net profit to mother grew positively. In the first quarter of 2024, the company's pharmaceutical industry achieved revenue of 2,693 billion yuan (-15.62% YoY), the pharmaceutical business achieved revenue of 1.911 billion yuan (-9.21% YoY), and Chinese herbal medicine resources achieved revenue of 246 million yuan (-21.47% YoY).

In terms of segments, respiratory medication achieved revenue of 1.05 billion yuan (+6.10% year-on-year) in the first quarter of 2024, achieving positive revenue growth under last year's high base; digestive and metabolic drugs achieved revenue of 682 million yuan (-28.04% year over year), mainly due to the decline in sales of Taiji Agastache Zhengqi oral liquid. In the first quarter of 2023, there was a high demand for Agastache Pharmaceuticals due to the epidemic. Anti-infective drugs achieved revenue of 397 million yuan (-29.63% year over year), mainly due to declining sales of Experian. Big health products/neurological drugs/cardiovascular drugs/anti-tumor and immunomodulatory drugs achieved revenue of $188/1.58/1.57/081 million yuan respectively, or -2.38%/-22.07%/-23.15%/-0.56%, respectively.

The overall gross margin of the pharmaceutical industry is stable. The gross margin of the company's pharmaceutical industry in the first quarter of 2024 was 64.90%, a year-on-year decrease of 0.27 percentage points. The gross margins of the company's respiratory system/digestive system and metabolic medications/anti-infective drugs/major health products/neurological medications/cardiovascular and cerebrovascular medications/anti-tumor and immunomodulatory agents were 68.13%/51.81%/52.80%/80.82%/77.88%/83.07%, respectively, +3.68/ -0.62/-9.81/-0.79/-3.34/+0.83/+1.61 percentage points year-on-year, respectively.

The new Agastache Cola invigorates the brand's youth and looks forward to sales during the peak season. At the end of March 2024, the company's new Agastache Cola was launched globally, bringing a new modern trend in the development of traditional Chinese medicine, and promoting brand rejuvenation and the penetration rate of Agastache products among young people. In April 2024, the “2024 Taiji Labor Summer Festival” charity campaign was launched to release the innovative marketing of Taiji Agastache's “New Cross-border, New IP, New Terminal, and All Categories” around the strategic upgrade of “full scenario, all channels, and all products”. Demand for summer heat protection is gradually opening up, and we look forward to the company's sales during the peak season.

Profit forecast and investment rating Agastache Zhengqi Oral Liquid has a high market ceiling for heat relief and moisture removal, and the company has increased product exposure and accurate penetration through various marketing plans; Emergency Syrup has many years of brand accumulation, and there is plenty of room to increase its market share in the field of cough medicine. We are optimistic about the continued growth of the company's large single products and the strengthening of the company's OTC brand power, and also optimistic about the improvement in profitability brought about by the company's expenses and cost control; we forecast 2024-2026 revenue of 184.16/214.90/25.610 billion yuan, respectively, and net profit to mother of 12.15.23/1,826 billion yuan, corresponding to the current stock price PE of 16/13/11 times, maintaining a “buy” rating.

Risks suggest that sales promotion of large single products falls short of expectations; risk of price reduction in product collection; cost control falls short of expectations; increased market competition; pharmaceutical policy risks, etc.