Incidents:

On April 22, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 761 million yuan (yoy -2.90%), net profit of 160 million yuan (yoy -8.26%), net profit of 152 million yuan (yoy -9.26%); 2024Q1 achieved revenue of 189 million yuan (yoy -2.41%), net profit attributable to mother of 454.67,800 yuan (yoy -12.54%), net profit of 43.438 million yuan (yoy -7.20%).

Comment:

The competitive pattern of core products is good, and sales revenue from Aitingjiu dapoxetine hydrochloride tablets and voritine, the company's core products in 2023, is basically the same as the previous year; sales revenue of gastroenterological tablets and gastroenterology pills has still achieved significant growth, including:

Gastrointestinal medication achieved sales revenue of 204.1544 million yuan, an increase of 29.20% over the previous year;? Health medication for both sexes achieved sales revenue of 224.7509 million yuan, a year-on-year decrease of 1.66%;? Ophthalmology achieved sales revenue of 18.43361 million yuan, a year-on-year decrease of 0.59%.

In July 2023, the company and Li Wanshan of Thailand reached a cooperation on the transfer of production technology for gastrointestinal pills. In the future, Hesong Pills will become the company's own OTC drug and accelerate the increase in its overall production capacity. At the same time, it will rely on the company's brand promotion advantages in OTC channels to promote it nationwide, aiming to make it a well-known leading product in the field of gastrointestinal medicine in China and increase drug sales revenue.

“Self-development+acquisition” is rich in product categories, and CKBAII clinical trials are progressing smoothly. The company continues to increase R&D investment and enrich the product pipeline. In 2023, the company invested 159 million yuan in R&D (yoy +194.97%), accounting for 20.95% of revenue.

Self-research: In 2023, the company achieved remarkable results in independent research and development: ornidazole injections, agatroban injections, and cabalatine bitartrate capsules obtained registration approval, achieving the R&D goal of implementing 2-3 R&D projects and converting sales every year. Other R&D products are also progressing steadily. As of April 2024, 13 drug research and development projects, including baritinib tablets, sildenafil citrate tablets, finasteride tadalafil capsules, vardenafil hydrochloride tablets, minoxidil liniments, and montelukast sodium granules, have submitted registration applications. Pilocarpine hydrochloride eye drops have obtained drug clinical trial approval notices in March 2024, and research and development is progressing smoothly.

Acquisition: In addition to the above and the transfer of production technology for gastrointestinal pills, in February 2023, the company acquired a controlling interest in Bochuangyuan. Through this acquisition, the company obtained CKBA's global innovative small molecule drug. CKBA ointment was successfully approved to conduct phase II clinical trials for vitiligo indications in July 2023. The first patient was enrolled in November 2023, and the phase II clinical trial is currently underway. In 2024, the company will concentrate resources to fully promote phase II clinical research on the indications of CKBA ointment for vitiligo to ensure that clinical trials are carried out in an orderly manner in strict accordance with the established plan. In the future, CKBA is expected to become another major product of the company.

Investment advice: Maintaining a “buy” rating

We have increased our 2026 performance forecast. We expect the company's revenue for 2024-2026 to be RMB 926/11.66/ RMB, respectively, with revenue growth rates of 21.7%/25.9%/25.7%, respectively; net profit to mother for 2024-2026 is RMB 22/306/420 million, respectively, with growth rates of 38.8%/37.6%/37.2%, respectively; EPS for 2024-2026 is expected to be 0.52/0.72/0.99 yuan, respectively The PE is 27/20/14x, respectively. The company has significant advantages in the fields of gastrointestinal medication and gender health medication, and clinical trials of the innovative drug CKBA have been successfully carried out. Maintain a “buy” rating.

Risk warning

Product development progress falls short of expectations; market competition increases risk.