Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 3,999 million yuan (+5.79%), net profit attributable to shareholders of listed companies of 619 million yuan (-6.55%), and 533 million yuan (-11.60%) attributable to shareholders of listed companies after deduction. In the first quarter of 2024, the company achieved operating income of 1,061 billion yuan (+10.44%), net profit attributable to shareholders of listed companies of 171 million yuan (+13.23%), and 157 million yuan (+14.30%) attributable to shareholders of listed companies after deduction.
Finished drugs remain steady, the results of sales system reforms are expected to gradually be reflected, and innovative drugs are expected to contribute to increased performance. In 2023, the company adjusted its sales system and completed the model adjustment of drug sales from a “branch line system” to a “hospital-retail system”; we believe that the new sales system will help the company's generic drug stock gain more room for growth in the primary market and the out-of-hospital market. In 2023, the company's finished drug revenue was 2,326 billion yuan (+4.98%), of which domestic trade revenue for finished pharmaceutical preparations in the second half of the year was 1,068 billion yuan, up 6.18% month-on-month from 1.06 billion yuan in the first half of the year, showing that the company's sales system adjustments have begun to bear fruit. In March 2024, didacinib capsules began to be marketed and sold. Compared with similar drugs, didacinib has certain advantages in terms of efficacy and safety, and is expected to become a new major variety in the field of insomnia medication.
Production capacity in the API sector is gradually being released, and the medical device business is expected to recover. The company's API revenue in 2023 was 956 million yuan (+9.60%). With the completion of production capacity upgrading and the completion of the first phase of the Shandong API base project, we believe there is room for improvement in the revenue and profitability of the company's API sector. The company's medical device revenue in 2023 was 637 million yuan (+1.39%), mainly due to a significant slowdown in domestic public hospital equipment and equipment procurement under the industry upgrade and rectification policy, which led to a low revenue growth rate. We believe that with the resumption of bidding and procurement after the policy is clarified, the company's medical device business is expected to resume relatively rapid growth.
Profit forecasting and valuation. We expect the company's revenue from 2024 to 2026 to be 4.497 billion yuan, 4.995 billion yuan, and 5.531 billion yuan, respectively, with year-on-year growth rates of 12.5%, 11.1% and 10.7% respectively; net profit to mother will be 687 million yuan, 777 million yuan and 883 million yuan respectively, with year-on-year growth rates of 11.0%, 12.9%, and 13.8%, respectively. Based on the closing price on May 8, the corresponding PE will be 15.0 times, 13.3 times and 11.7 times, respectively, maintaining the “buy” rating.
Risk warning: Sales of innovative drugs fell short of expectations; prices of generic drugs in stock fell beyond expectations; growth in the API and medical device business fell short of expectations.