Incidents:

In 2023, the company achieved operating income of 784 million yuan, -5.39% year on year; net profit to mother was 254 million yuan, -8.39% year over year; net profit after deducting non-return to mother was 227 million yuan, -10.45% year on year.

The company's 2024Q1 revenue was 221 million yuan, +7.15% year over year; net profit attributable to mother was 77 million yuan, +23.19% year over year; net profit without return to mother was 68 million yuan, +22.30% year over year.

Analytical reviews

2023: Under pressure from 23Q4, falling gross margins+rising expense ratios put short-term pressure on profits 23Q4: In a single quarter, the company's 2023Q4 revenue was 242 million yuan, -24.80% year over year; net profit to mother was 115 million yuan, -22.03% year over year; net profit without return to mother was 108 million yuan, -24.05% year over year.

23 Annual financial data: The company's overall gross margin in 2023 was 82.2%, -1.69 percentage points year on year; the cost ratio for the period was 54.88%, up 1.69 percentage points from the same period of the previous year, of which the sales expense ratio was 40.39%, up 1.87 percentage points from the previous year; the management expenses ratio was 11.09%, an increase of 0.74 percentage points over the previous year; the financial expense ratio was -2.94%, mainly interest income from deposits exceeded interest expenses such as loans and convertible bonds.

The main variety market dominates, with stable demand in Zhejiang. Internet sales growth is steady by product category. Revenue of Ganoderma lucidum spore powder products in 2023 was 534 million yuan, accounting for 69.27%, negative increase of 7.92% year on year, gross margin was 87.81%, down 0.87 percentage points from the same period last year; revenue of dendrobium officinale products was 127 million yuan, accounting for 16.45%, negative increase of 2.03% year-on-year, gross margin was 78.64%, down 0.08 percentage points from the same period last year; revenue for other products was 110 million yuan Yuan, accounting for 14.29%, increased 1.07% year over year.

According to sales regions, revenue in Zhejiang in 2023 was 478 million yuan, accounting for 62.08%, a negative increase of 8.49%; revenue outside the province was 80.2679 million yuan, accounting for 10.42%, a negative increase of 17.89%; Internet revenue was 212 million yuan, accounting for 27.5%, up 7.35% year on year.

Steady R&D investment and clear long-term goals

The company's R&D expenses in 2023 accounted for 6.33% of revenue, mainly focusing on research on the pharmacological efficacy of the product and clinical efficacy in humans. In recent years, the company has focused on pharmacological efficacy research and clinical efficacy research of Ganoderma lucidum spore powder in humans. Since 2020, the company has initiated 16 small-sample clinical trials, 3 of which have been completed. In addition, four more projects have already been enrolled and are being followed up, while nine other clinical trials are progressing steadily.

In 2024, the company will closely focus on the vision of “building the first organic Chinese medicine brand” and “building the world's leading brand of Ganoderma lucidum”, and the long-term goal of driving farmers to increase their income by 10 billion dollars, revenue by 10 billion dollars, and total assets of 10 billion dollars by 2035.

Investment advice

We expect the company's revenue for 2024-2026 to be 88/10.0/1.13 billion yuan, respectively, up 12.7%/12.9%/13.0% year on year, and net profit to mother will be 3.0/3.4/3.9 billion yuan, respectively, up 16.4%/14.7%/13.7% year on year, respectively. The corresponding valuation is 18X/16X/14X. Maintain a “buy” investment rating.

Risk warning

The risk of natural disasters, risk of expansion outside the province falling short of expectations, risk of loss of species, etc.