Incident: Eling Pharmaceutical released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 10.318 billion yuan (YoY -17.67%), net profit attributable to mother of 1,352 million yuan (YoY -42.76%), net profit after deducting non-attributable net profit of 1,265 million yuan (YoY -45.58%); in the first quarter of 2024, the company achieved revenue of 2,523 million yuan (YoY -74.89%), net profit not attributable to mother of RMB 292 million (YoY- 75.18%), short-term pressure on performance.

Performance was pressured by multiple factors, and non-respiratory products maintained a good trend. By product, in 2023, the company achieved revenue of 47.09/33.05/4.35/1,865 billion yuan, compared to +12.71%/-51.90%/+13.82%/+71.43%. It is expected that respiratory products will be affected by factors such as falling market demand due to high base and high social inventories during the same period, and non-respiratory products will maintain a good trend. In 2023, the company's gross sales margin was 57.28% (-6.49pcts) and the 2024Q1 gross sales margin was 51.48% (year-on-year -13.48pcts). Expected to be affected by rising raw materials and a decline in the share of high-margin flower products, the 2023 sales expense rate/management fee rate/financial expense ratio/R&D expense ratio will be 26.21%/5.74%/0.26%/8.27%, respectively, +0.21pcts/+0.86pcts/+0.1pcts/+ 0.04pcts, R&D investment continues to increase.

Research and development of traditional Chinese medicine is progressing steadily, and the research pipeline is abundant. In 2023, Tongluo Mingmu capsules for the treatment of diabetic retinopathy were approved for marketing; the patented traditional Chinese medicine Lianhua cough tablets were converted from prescription drugs to non-prescription drugs; “Tongxinluo capsules treat ischemic stroke, Lianhua Qingfeng granules treat childhood influenza, cure depletion capsules to improve the quality of life of patients with advanced non-small cell lung cancer and Xia Li Qi capsules to treat benign prostatic hyperplasia were successfully revealed; the “China Tongxinuo treatment of acute myocardial infarction myocardial myocardial hyperplasia and many evidence-based medical studies were successfully revealed; the “China Tongxinuo treatment of acute myocardial infarction myocardial myocardial infarction myocardial protective effects” was published Journal of the American Medical Association (JAMA), 2022 Impact Factors 120.7

Give it an “gain” rating. The estimated net profit for 2024-2026 is 15.76/18.47/21.70 billion yuan, +16.5%/+17.2%/+17.5% year-on-year, EPS of 0.94/1.11/1.30 yuan, and corresponding PE of 20.0x/17.0x/14.5x, respectively. Considering the company's unique patented drug development and academic marketing promotion model under the guidance of the company's unique complication theory, it was given an “increase in weight” rating.

Risk warning: risk of policy adjustment, risk of R&D innovation, risk of rising costs.