occurrences
In 2023, the company achieved operating income of 1,635 million yuan, +36.10% year over year; net profit to mother of 293 million yuan, +45.42% year over year; net profit after deducting non-return to mother was 246 million yuan, +26.21% year over year.
The company's 2024Q1 revenue was 422 million yuan, +20.93% year over year; net profit to mother was 56 million yuan, +2.03% year over year; net profit without return to mother was 56 million yuan, +4.95% year over year.
Analytical reviews
2023: Strong growth in 23Q4, solid financial metrics
23Q4: Looking at a single quarter, the company's 2023Q4 revenue was 665 million yuan, +35.48% year over year; net profit to mother was 135 million yuan, +37.99% year over year; net profit after deducting non-return to mother was 93 million yuan, -6.93% year over year.
23 Annual financial data: The company's overall gross margin in 2023 was 73.31%, +1.57 percentage points year on year; the period expense ratio was 55.60%, +2.77 percentage points year on year; of which sales expenses ratio was 48.48%, +1.65 percentage points year on year; management expenses ratio (including R&D expenses) 7.16%, +1.07 percentage points year on year; financial expenses ratio -0.05%, +0.05 percentage points year on year; net operating cash flow was 277 million yuan, -5.65% year on year.
The Throat Sword series continues to grow, with extensive network coverage leading to increased market recognition by product. By product, respiratory medicine (Kay Sword series) is the main source of revenue and has achieved steady growth. Revenue for 2023 was $1,300 million, with a year-on-year growth rate of +19.52%; gross margin was 73.52%, up 1.84 percentage points year-on-year.
By the end of 2023, the company's product Throat Sword Spray (children's type) had covered 334 cities and 2355 counties, covering a total of more than 175,000 terminals of various types, including 5,500 first-level hospitals, more than 13,000 primary care terminals, more than 34,000 clinics, and more than 123,000 retail terminals such as pharmacies. It has covered more than 98% of children's specialty hospitals in China. At the same time, it has also been selected by many authoritative domestic pediatric proprietary Chinese medicine guidelines, and is highly recognized by the market.
Throat Sword Spray (adult type) has covered 242 cities and 1,539 counties, covering a total of more than 8,4,600 terminals of various types, including more than 3,300 grade hospitals, 8,400 primary care terminals, more than 35,000 clinics, and more than 62,000 retail terminals such as pharmacies, etc., and has covered more than 67% of domestic specialist hospitals.
Investment and mergers and acquisitions were completed to diversify the product structure and achieve sales growth in early 2023 through investment in Haostel, which is a key domestic production enterprise specializing in research and production of drugs for bone diseases. It is also an old Chinese company. Its main products include “Invincible capsules, invincible pain relievers, topical invincible cream, and invincible medicinal liquor”. In November 2023, Hanfang Pharmaceutical was included in the scope of the merger. As an established pharmaceutical company in Guizhou Province, Hanfang Pharmaceutical has rich drug approvals and many exclusive products. Currently, it has 8 GMP drug production lines; more than 80 drug approval numbers, including 19 exclusive varieties and 28 national medical insurance varieties.
Through collaboration between the four pharmaceutical companies Sanli, Dechangxiang, Hanfang Pharmaceutical, and Invincible Pharmaceutical, the company diversified its product structure and achieved an increase in sales volume through this synergy. All four companies achieved profits during the reporting period, which had a significant positive impact on the company's overall revenue and profits.
In 2023, while continuing to develop hospital channels, the development of OTC channels will be further strengthened.
In 2023, more than 700 new hospital channels were developed; 15 new top 100 chains were developed; more than 600 small and medium-sized pharmacy chains were developed; and more than 60,000 new third terminals were developed.
When the 24Q1 merger and integration is in progress, it can be expected throughout the year
24Q1 financial data: The overall gross margin of the 24Q1 company was 69.51%, -2.89 percentage points year on year; the cost ratio for the period was 52.34%, -2.00 percentage points year on year; of which sales expenses ratio was 42.46%, -5.69 percentage points year on year; management expense ratio (including R&D expenses) 8.63%, +2.71 percentage points year on year; financial expense ratio was 1.25%, +0.98 percentage points year on year; net operating cash flow was 0.06 billion yuan, -1.8552% year on year.
The net interest rate is affected by various aspects. After merging with Hanfang Pharmaceutical, since the net interest rate of its products is lower than that of Sanli, it may have a certain downward effect on the overall net interest rate. In addition, loan finance expenses added last year and depreciation expenses after the fund-raising project is converted to fixed assets will also have a certain impact on the company's financial situation. Based on the company's 2024 financial budget target, consolidated revenue for the full year is expected to be between $2.4 billion and $2.6 billion.
Investment advice
We expect the company's revenue from 2024 to 2026 to be 24.2/2,94/3.53 billion yuan, respectively, up 47.7%/21.8%/20.0% year on year, and net profit to mother will be 3.5/4.4/550 million yuan, respectively, up 20.2%/25.0%/24.9% year on year. The corresponding valuation is 18X/15X/12X. Maintain a “buy” investment rating.
Risk warning
Marketing development falls short of expectations; risk of dependence on large products; risk of falling short of expectations in implementing acquisition strategies; loss of new companies exceeding expectations, etc.