Sinopharm's A-share Chinese medicine flagship opens a new chapter in strategic restructuring. Taiji Group is mainly engaged in the production and sale of Chinese and Western medicines. It is committed to inheriting innovative traditional Chinese medicine and developing modern medicine. It is a large-scale enterprise group with a full industrial chain layout. In April 2021, the company completed a strategic restructuring, and the actual controller was changed to Sinopharm Group.
Under the leadership of Sinopharm Group, the company released the “14th Five-Year Plan” strategic plan, clarifying the development path of “one main, two auxiliary”, thus opening a new chapter.
The pharmaceutical industry is the main focus, and the pharmaceutical business, Chinese herbal medicine, and service industries have developed comprehensively. In 2023, the company's pharmaceutical industry revenue was 10.388 billion yuan, a three-year compound growth rate of 20.73%; pharmaceutical commercial revenue was 7.726 billion yuan, a three-year compound growth rate of 14.48% in 2021-2023; revenue from Chinese herbal medicine resources was 1,017 billion yuan, up 118.60% year on year; and revenue from the service industry was 52 million yuan, up 15.84% year on year. At present, the company has formed good competitiveness in various business segments: 1) in the pharmaceutical industry, with a clear product hierarchy, strong brand influence, and has the first batch of well-known trademarks “Taiji” and 2 time-honored Chinese brands; 2) In terms of commercial retail, the competitiveness of “Taiji Pharmacy” and “Tongjun Ge Pharmacy” rank first in Sichuan and Chongqing; 3) In terms of commercial distribution, the industry chain has significant advantages, covering more than 100 cities, districts and counties in Sichuan and Chongqing; 4) In terms of Chinese herbal medicine cultivation, the results and quality are impressive. It has outstanding advantages. It has covered 20 provinces and regions across the country, involving as many varieties Over 50.
It focuses on the “6+1" treatment field and has a wide range of products. In 2023, around the “6+1" key treatment areas, the company formed a broad product group in the field of treatment, focusing on digestive and metabolic drugs, respiratory medicine, cardiovascular medicine, anti-infective drugs, neurological drugs, anti-tumor and immunomodulatory drugs, and health products, and a basic product line based on therapeutic popular Chinese medicines (especially base drugs and medical insurance varieties).
Reforms continue to advance, and the level of operation and management has been steadily improved. The company closely focuses on the “14th Five-Year Plan” strategic plan, promotes reform and development in depth, and fully initiates digital transformation. 2024 is an aggressive year for the company's digital transformation. The company closely focuses on digital transformation and deployment, focuses on creating application scenarios for various business segments, and accelerates the construction of “a digital tai chi”, which is expected to set a benchmark for digital transformation in the traditional Chinese medicine industry and digital Chongqing.
Investment advice: First coverage, with an “increase in weight” rating. The company is currently one of the largest enterprise groups with the most complete pharmaceutical industry chain in China. With the continuous advancement of corporate reforms and the full launch of digital transformation, the business is expected to continue to be optimized. The net profit of the company is expected to be 10.73/13.01/1,561 billion yuan respectively in 2024-2026, an increase of 30.51%/21.24%/20.03% over the previous year. Based on absolute valuation and relative valuation, we believe that the reasonable market value range for the company is 231.35 to 26.624 billion yuan, and the reasonable stock price is 41.54-47.81 yuan, with a 2% to 17% premium compared to the current stock price.
Risk warning: risk of price reduction in collection; risk of R&D; risk of increased competition; risk of price fluctuation of Chinese herbal medicines.