Incident: 1) On April 26, 2024, the company released its 2024 quarterly report. 2024Q1 achieved revenue of 1,227 million yuan (yoy -8.74%), net profit of 267 million yuan (yoy +9.99%), and net profit of non-return to mother of 264 million yuan (yoy +16.64%). 2) The company issued the “2024 “Improving Quality, Efficiency and Reward” Action Plan. In the future, the company will continuously evaluate the progress and results of implementing this “Improve Quality, Increase Efficiency, and Focus on Rewards” action plan and fulfill information disclosure obligations.

Revenue side: OTC continues to grow on a high base, and the health sector falls short of expectations. 2024Q1 achieved revenue of 1,227 billion yuan (yoy -8.74%), mainly due to the large base of impact of the XBB virus in 2023Q1. By business, the OTC business 2024Q1 still achieved 4.40% year-on-year growth under the influence of a high base, with a revenue scale of 1.07 billion yuan. It is estimated that the main products, products such as stomach health tablets and lactic acid bacterin tablets, continued past marketing results; the prescription drug business in 2024Q1 achieved revenue of 105 million yuan (yoy -43.97%), mainly due to the fact that some product collection did not win the bid; Big Health Business achieved revenue of 110 million yuan (yoy -40.33%) in 2024Q1, which fell short of expectations compared with the progress of business expansion for some of the main products There was a slowdown in the same period last year, and changes in product structure, such as a reduction in items such as branding and wholesale of medical supplies.

Profit side: The net interest rate to the mother reached a record high, and the sales expenses ratio dropped significantly. 2024Q1 achieved net profit of 267 million yuan (yoy +9.99%) and net profit of non-return to mother of 264 million yuan (yoy +16.64%). The gross margin of 2024Q1 was 68.77% (+1.56pct). Among them, the gross margin of the OTC business and the health business increased by 1.26/8.41pct, respectively, and the gross margin of the prescription drug business declined by 23.76 pct due to changes in product structure due to some product collection and failure to win the bid. The net interest rate to mother was 21.74% (yoy+3.70pct), further improving profitability. Expense-side control is better. According to the adjusted data from the accounting statements, the 2024Q1 sales expense rate/management expense rate/financial expense ratio were 36.76%/3.25%/-1.73%, respectively, down 3.25/0.50/0.81 pct year on year. The sales expense ratio decreased significantly from last year's Q1 and fell back to the level of 2022/Q1.

“Improve Quality, Increase Efficiency, and Value Rewards” Action Plan: Consolidate the results of the three-year action on state-owned enterprise reform and promote the deepening and upgrading of state-owned enterprise reform. Since the company was incorporated into the China Resources system in 2019, the optimization and improvement of the company's financial indicators, dividend ratio, development strategy planning, internal management efficiency, R&D investment, brand potential, etc. are all obvious. In order to consolidate the results of the three-year action of state-owned enterprise reform and promote the deepening and upgrading of state-owned enterprise reform, the company launched the “2024 Quality Improvement, Efficiency, and Return” action plan: ① At the business level, adhere to “endogenous growth+extrinsic mergers and acquisitions” to improve the post-investment management system to help high-quality growth; ② At the R&D level, increase investment in R&D resources, strengthen R&D network construction, and deepen R&D pipeline layout Move Intelligent manufacturing transformation and upgrading; ③ Maintaining a stable and continuous dividend policy and sharing development dividends. Cash dividends rank at the top of the industry in the past three years by increasing the number of dividends and stabilizing dividend expectations; ④ expand communication channels, enhance the effectiveness of investor communication, and maintain a positive image in the capital market; ⑤ Continuously improve the system to strengthen the quality of ESG information disclosure. In 2023, the company won honors such as “Best Practice Case of Corporate Governance” by the China Association of Listed Companies; ⑥ Improve the long-term incentive and restraint mechanism to promote The equity incentive plan was implemented. On January 3, 2024, the company issued the second draft equity incentive plan to enhance the enthusiasm of the company's executives and core cadres.

Investment advice: Jiangzhong Pharmaceutical is a high-dividend+high-quality brand OTC enterprise. It focuses on the gastrointestinal field, complements and perfects categories such as cough, cough, rehabilitation, nutrition, etc., and actively explores online channels through “endogenous+epitaxial” two-wheel drive. We are optimistic about the company's future revenue growth and collaborative optimization under China Resources's management system through category expansion and channel strengthening. The company is expected to achieve revenue of 49.16/56.49/6.582 billion yuan in 2024-2026, with a year-on-year increase of 12%/15%/17%, respectively; net profit due to mother of 8.18/9.48/1,107 billion yuan, up 15%/16%/17% year on year, respectively; and corresponding PE valuations are 21/18/15X, maintaining an “increase” rating.

Risk warning: macroeconomic fluctuation risk; policy risk; increased industry competition; risk of cost fluctuations; product promotion falling short of expectations; R&D risk.