In the first quarter of 2024, the company achieved operating income of 4.208 billion yuan, a year-on-year decrease of 4.96%; net profit to mother was 247 million yuan, an increase of 5.05%; net profit after deducting non-return to mother was 218 million yuan, a year-on-year decrease of 8.47%.

2024Q1 achieved a gross profit margin of 46.47%, a year-on-year decrease of 4.53pct, a net profit margin of 5.92%, and a year-on-year increase of 0.58pct.

Revenue was under pressure in the short term due to the base figure, and respiratory products such as emergency syrup performed well. In 2024, Q1's pharmaceutical industry revenue was 2,693 billion yuan, down 15.62% year on year. Among them, respiratory drug revenue was 1.05 billion yuan, up 6.10% year on year, mainly rapid syrup sales; digestive and metabolic drug revenue was 682 million yuan, down 28.04% year on year due to the high base of Agastache Zhengqi Oral Liquid during the same period last year; revenue from anti-infective drugs was 397 million yuan, revenue from neurological drugs was 158 million yuan, and revenue from cardiovascular and cerebrovascular use was 157 million yuan, all of which declined. In 2024, Q1 pharmaceutical commercial business revenue was 1.911 billion yuan, down 9.21% due to base and other reasons, and gross margin was 8.62%, down slightly year on year. Chinese herbal medicine resource business revenue was 246 million yuan, down 21.47% year on year. The company's performance was affected by high base and other reasons, and there was pressure in the short term.

The cost ratio for improving quality and efficiency has declined, while the net profit margin has increased. The company's gross margin declined by 4.53 pct in Q1 in 2024, but the net profit margin level increased by 0.58 pct. The company's effect of improving quality and efficiency began to be reflected, and the cost ratio decreased during the period. 2024Q1's sales expense ratio was 33.08%, down 4.40 pct year on year, management expense ratio was 4.00%, down 0.20 pct year on year, R&D cost ratio was 1.33%, up 0.47 pct year on year.

Agastache is about to enter a peak sales season, and the Big Health business is showing impressive performance. 2024Q1's revenue from digestive and metabolic drugs, mainly agastache, has declined. Q2 is about to usher in the peak sales season for the agastache category. While consolidating the advantages of agastache to relieve heat, the company is working on the moisture removal circuit, extending moisture removal application scenarios, and at the same time experimenting with a cross-border model to launch new products such as “Agastache Ice Cream” and “Agastache Cola” to drive online and new retail growth. In 2024Q1, the company first disclosed that the revenue volume of the health business was 126 million yuan, an increase of 60.15% over the previous year. As one of the company's key cultivation areas, its outstanding performance is expected to gradually become a new performance growth point for the company.

Maintain a “Highly Recommended” investment rating. We are optimistic about the advantages of Taiji as the core traditional Chinese medicine platform under the Sinopharm Group. The pharmaceutical industry is gradually recovering, the pharmaceutical business aims to improve quality and efficiency, and the Chinese herbal medicine resources and health business have begun. The estimated revenue for 2024-2026 will be 181.8/209.4/23.44 billion yuan, up 16.4%/15.2%/12.0% year on year, and net profit to mother will be 10.6/13.3/1.6 billion yuan, up 28.4%/25.6%/20.4% year on year, corresponding PE is 19/15/13 times, maintaining the “Highly Recommended” investment rating.

Risk warning: core product collection, cost increase, R&D failure, market risk, policy risk, etc.