Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved operating income of 1,629 million yuan, net profit to mother of 187 million yuan (-34.64%), net profit after deducting non-return to mother of 133 million yuan (+25.35%). Excluding this factor, Baijun Medical did not include this factor in the consolidated statement. In addition, the confirmed investment income from the transfer of some shares of Junbai Medical also affected the net profit base for the same period last year. 24Q1 achieved operating income of 438 million yuan (+0.37%), net profit attributable to mother of 70.19 million yuan (+10.04%), and net profit without return to mother of 53.9 million yuan (+9.61%).

Comment:

In 2023, the company's pharmaceutical manufacturing sector achieved revenue of 1,439 billion yuan (-0.27%), of which revenue from respiratory medicine and pediatric medication both achieved a year-on-year increase of more than 20%, while revenue for cardiovascular and cerebrovascular diseases and musculoskeletal medicine declined year-on-year, mainly due to the successive inclusion of ezetimib tablets and garcinia cambogia tablets in collection, respectively. Most of the products in the “338 Major Product Development Plan” showed a steady growth trend. For example, sales revenue of Strong Loquat Lotion increased by more than 80% year on year, and sales revenue of products such as Strong Loquat Cream (Honey), Pu Di Lan anti-inflammatory tablets, and Blood Clover tablets all increased by more than 20% year on year. Innovative traditional Chinese medicine is developing well. Children's Jingxing cough tablets have covered nearly 900 grade hospitals and about 400 primary hospitals, achieving revenue of nearly 60 million yuan; Xuanqijian Bone tablets have covered nearly 500 grade hospitals throughout the year, achieving revenue of 32 million yuan.

By the end of 2023, the company had carried out 13 innovative traditional Chinese medicine research and development projects covering departments such as gynecology, orthopedics, respiratory medicine, pediatrics, and oncology. The varieties with the highest progress in innovative traditional Chinese medicine research and development projects include Noliton granules, stomach health and pain relief pills, and Hiruron tablets. Among them, stomach health and pain relief pills are undergoing phase III clinical trials and are expected to be declared for production in 2025; clinical research on phase II of Zhilong tablets is progressing smoothly; and Nolitong granules are undergoing long-term toxicity tests. In addition, clinical progress is progressing smoothly with the addition of pediatric Jingxing cough tablets for adult use. Hemostatic and analgesic granules are undergoing pharmaceutical research, and anti-tumor granules have been declared for clinical trials at 24M4.

Profit forecast: We expect the company's net profit to be 233 million yuan, 298 million yuan, and 368 million yuan respectively for 2024-2026, corresponding to EPS of 0.53 yuan, 0.68 yuan, and 0.84 yuan respectively. The company optimizes its asset structure, focuses on innovative traditional Chinese medicine, and has a rich product matrix. Referring to comparable companies, we gave the company 2024 22-28X PE, with a corresponding reasonable value range of 11.67-14.85 yuan, maintaining a “superior to the market” rating.

Risk warning: Risk of R&D progress falling short of expectations, risk of product sales falling short of expectations, risk of increased industry competition, risk of collection policies.