Basic market: Good asset structure, reliance on two core exclusive products, strong independent hematopoietic ability. The company's asset structure and cash flow are good. It has strong independent hematopoietic capacity, and does not rely on large capital expenses. At the performance level, it has two core exclusive product support — Elderberry Seven Centigrade tablets is a national base drug+ exclusive variety, and Shuangjiangfeng is an exclusive variety+century-old formula, which has a certain influence in South China.

Product side: The product structure continues to improve, and revenue flexibility is expected to be released. In the past, the company's style was conservative and never tapped into new potential varieties, leading products were concentrated. Last year, the company began developing a large variety of exclusive traditional Chinese medicines. Using Gujing ginseng and mushroom pills as a breakthrough, it is expected to become a new performance growth point. As of May 2024, there are plenty of orders on hand for Gujing ginseng antler pills. The company has responded positively to investing in factories to expand production capacity, and there is plenty of momentum for long-term growth. In addition, the leading product, the lead product, is included in the collection, and it is expected that the hospital will gradually release it; new dosage forms will be added to accelerate the expansion of channels; research work on changes to anti-ventricular tablets and menstrual relief tablets will be actively carried out to promote the marketing and circulation of the second potential single product. In the long run, the participating companies' natural ice flakes are expected to replace the import of natural ice flakes and upgrade and replace synthetic ice flakes.

Cost side: Promoting refined management, cost reduction and efficiency can be expected. The company's net interest rate to mother remained at the level of 12%-14% in 2014-2016. It fluctuated greatly in 2017-2021, and rebounded to around 6.5% in the past two years. Excluding asset impairment loss factors, the company's net interest rate to mother has been rising steadily in the past five years, and there is plenty of room for optimization. This year, the company will continue to strengthen fine management and reasonably control costs and expenses. Combined with collection factors, the sales expense ratio is expected to be further optimized, and the profit side can be expected to improve.

Management side: The company's management gradually stabilized, and the internal system revision and improvement work was successfully completed. The management of the company gradually stabilized, and business operations rebounded steadily. Positive issues left over from history. By the end of 2023, the comprehensive revision and improvement of the internal system had been successfully completed, helping the company to be healthy and sustainable.

Investment advice: As a leading regional pharmaceutical company, the company has two core and exclusive products. The company's basic market is relatively stable, and currently it has shown a marginal positive trend from the product side, cost side, and management side. Combined with macroeconomic factors such as traditional Chinese medicine policy support and population aging, the company's performance is expected to usher in a breakthrough. The company is expected to achieve revenue of 6.9/8.39/975 million yuan in 2024-2026, with a year-on-year increase of 29%/22%/16%; net profit to mother of 0.52/0.77/ 107 million yuan, up 51%/49%/39% year-on-year respectively; and corresponding PE valuations are 63/42/30X, respectively. Covered for the first time, a “gain” rating was given.

Risk warning: The yield of seven percent fell short of expectations. The company's leading products concentrated risk, industry competition increased risk, and demand for natural ice flakes fell short of expectations.