Key investment points: steady and upward performance, high dividends, sufficient cash
Kangchen Pharmaceutical Group created a “1+6” product pattern, with nephrology as its flagship, and promoted a series of products for imaging, women and children, bone injuries, skin, hepatobiliary, and digestion. The company's core single product is uretoxin granules, which are the leading products of nephrology oral proprietary Chinese medicine, growing steadily. The company is increasing its potential product, nephrogenic and moisturizing granules, to accelerate nephrological income growth; Yulin Pharmaceutical is the second largest single product, which promotes accelerated revenue growth through larger specifications, and is expected to maintain rapid growth in the future; Yulin Pharmaceutical is expected to continue to grow rapidly in the future; Yulin Pharmaceutical is expected to continue to grow rapidly in 2024-2026; Yulin Pharmaceutical is expected to continue to be approved and launched in 2024-2026 to provide growth impetus; Yulin Pharmaceutical is expected to continue to be approved and launched in 2024-2026 to provide growth impetus; Yulin Pharmaceutical is expected to continue to be approved and launched in 2024-2026 to provide growth impetus; Yulin Pharmaceutical is expected to continue to be approved and launched in 2024-2026 to provide growth impetus; Yulin Pharmaceutical is expected to continue to be approved and launched in 2024-2026 to provide growth impetus; Yulin Pharmaceutical is expected to continue to grow. After being pressured for a short period of time in 2020, after being reformed Good growth resumed in 2021-2023, and is expected to maintain an upward trend in the future. Based on this, the company's overall performance has been steady and improving. At the same time, the company maintained high dividends all year round and had sufficient cash (cash balance of 3.58 billion yuan at the end of 2023).
Steady improvement in business performance
Nephrology: In 2022, Urenoclear granules were included in the Guangdong Alliance for collection, and the decline was moderate. In 2023, most of the collecting provinces achieved a positive increase in sales volume, with a revenue growth rate of 10.2%, and the reduction in collection prices had little impact on the profitability of the variety. Subsequently, with further development and production capacity increases in uncovered hospitals, we believe that uremia granules can still maintain a steady increase of about 10%. The company is increasing the promotion of beneficial kidney humidification granules. It has accumulated more clinical evidence in the early stages. It plans to launch evidence-based medical research in 2024. The revenue growth rate will reach more than 25% in 2021-2023, and it is expected to maintain rapid growth in the future.
Women's and children's side: In 2022, iron dextran oral solution was revised to better meet the recommended dosage in clinical guidelines and achieved a 20% + increase. At the end of 2023, the new medical insurance catalogue removed the medical insurance reimbursement limit for “limited iron deficiency anemia in children”, adding further impetus to subsequent growth.
In terms of imaging: The market position of gadolidine citrate is stable, and revenue continues to grow steadily. Revenue was under short-term pressure in 2023 due to the lack of participation in harvesting, but in 2024, there will be no high base impact before collection, and ioxanol and iopromide injections are expected to be marketed as soon as 2024. The two MRI contrast agents are expected to be marketed as soon as 2025, providing new impetus for business growth.
Yulin Pharmaceutical: In 2019, revenue fell by about 48.1% year-on-year due to changes in the non-prescription drug market environment and intensified competition. Subsequent adjustments and channel, terminal and price order were gradually restored. Revenue maintained a 10% + growth rate in 2021-2023. It achieved restorative profits for three consecutive years, and maintained a steady upward growth trend.
The company maintains high annual dividends and sufficient cash
The company has paid cash dividends every year since 2014, and the dividend payment rate has remained at 30%. In 2023, it reached 42.68%, and the dividend rate reached 9.43%. The company's net operating cash flow is steady and has sufficient cash. The cash balance reached RMB 3.58 billion by the end of 2023.
Profit forecasting
We expect the company's revenue for 2024-2026 to be 2,901/32.72/3.694 billion yuan, respectively, and net profit to mother of 8.93/10.22/1,170 billion yuan, respectively, corresponding EPS of 1.09/1.25/1.43 yuan/share. The current latest closing price corresponds to PE of 5.82/5.09/4.44 times, respectively, for the first time covered, giving a “buy” rating.
Risk warning: The promotion of new products falls short of expectations; the increase in collection volume falls short of expectations.