Incident: The company announced its 2023 annual report and 2024 quarterly report. Affected by factors such as the decline in market demand for respiratory products due to high base and high social inventories in the same period in 2022, it achieved operating income of 10.318 billion yuan (-17.67%), net profit to mother of 1,352 billion yuan (-42.76%), net profit of non-return to mother of 1,265 million yuan (-45.58%); 24Q1 achieved operating income of 2,523 billion yuan (-35.89%) and net profit to mother of 304 million yuan (- 74.73%), net profit not attributable to mother of 292 million yuan (-75.18%).

Comment:

Respiratory system products achieved revenue of 3.305 billion yuan (-51.90%) in 2023. Excluding respiratory products, sales of the company's other patented products maintained steady growth: cardiovascular products achieved revenue of 4.709 billion yuan (+12.71%), and the “Tongxinluo Treatment CTS-AMI” results paper was published in the “Journal of the American Medical Association”. Currently, Tongxin, Sansong Yangxin, and Qi Qiangxin are all in the paper submission stage; other patented products achieved revenue of 1,869 billion yuan (+69.72%), and spiritual products relieve anxiety and anxiety A total of more than 400 accounts have been opened in 23 years (including 7 of the top 10 mental health centers in China). The newly approved 1.1 new drug distribution list is being introduced into hospitals. Based on recent anti-aging related research, Bazi Kidney Supplement is increasing promotion efforts, adjusting organizational structures and sales channels, and striving to explore sales models. We believe that all of these products will be an important increase in revenue in 24 years.

In 2023, the company spent 935 million on R&D. Among them, the Chinese medicine sector mainly invested in research and development of new traditional Chinese medicines, secondary development of already marketed varieties of traditional Chinese medicines, and a small amount invested in R&D of formula granules and tablets; the chemical sector mainly invested in first-class new drugs, raw materials/intermediates, and a small amount invested in chemical ANDA and consistency evaluation; in addition, a small amount of R&D was invested in health product research and development. In terms of new traditional Chinese medicine, the new drug “Tongluo Ming Mu Capsule” was approved for marketing in 23 years, and “Astragalus Anti-Nasal Tablets” to treat persistent allergic rhinitis were reported to be produced and approved by CDE. “Chai Huang Lianli Gan capsules” to treat chronic cholecystitis completed clinical phase III, and 2 varieties of “Pediatric Lianhua Qinggan Granules” and “Luobitong Tablets” are in phase III clinical phase. 3 varieties are in phase II clinical trials, and 1 variety has been approved for clinical trials. The company has layouts in various disease segments in the four fields of respiratory, endocrine, gastrointestinal hepatology, gynecology, and pediatrics, as well as layout plans in the fields of facial surgery, immune diseases, rheumatoid diseases, and rare diseases.

Profit forecast: We expect the company's net profit to be 1,512 billion yuan, 1,796 billion yuan, and 2.130 billion yuan respectively, up 11.8%, 18.8%, and 18.6% year-on-year respectively, corresponding to EPS of 0.90 yuan, 1.07 yuan, and 1.28 yuan respectively. The company has a variety of patented traditional Chinese medicines in the cardiovascular and respiratory fields to form a unique product layout, and also has a competitive advantage in scientific research guided by the complicated disease theory. In the future, many innovative traditional Chinese medicine drugs will be launched one after another. Referring to comparable companies, we gave the company 20-25 XPE in 2024, with a corresponding reasonable value range of 18.10-22.62 yuan, maintaining a “superior to the market” rating.

Risk warning: the risk of purchasing proprietary Chinese medicines in bulk, risk of R&D falling short of expectations, risk of marketing falling short of expectations.