Wuling capsules have benefited from a marked increase in collection. Second-tier varieties have accelerated contributions. Wuling capsules are the company's exclusive product, treating insomnia, amnesia, mental disorders, etc., with a clear mechanism of action, and have entered multiple clinical guidelines; based on the above advantages, Wuling capsules showed a continuous upward trend in the market share of urban and county-level public hospitals. In 2021, the market share of urban and county-level public hospitals reached 14% and 10% respectively.
We believe that Wuling capsules have ushered in accelerated development opportunities under collection (price reduction of 21%, which is relatively mild). First, sales increased by replacing large packaging, from 36 capsules/box to 54 capsules/box. More department doctors are used to prescribing dosage according to the number of boxes. As a result, the number of tablets in a single box has increased by 50%. Currently, the six provinces (autonomous regions) of the Guangdong Union, Beijing, Jiangsu, Fujian, Tianjin, Chongqing, etc. have carried out collection; second, sales personnel have replaced larger packaging according to local medical insurance and hospital conditions, such as Beijing Wuling The procurement specifications for capsules are mainly based on recent purchases Mainly 270 capsules/box, further boosting sales. In terms of profit, at present, collection is expected to affect more than half of sales. Under larger specifications, the impact on gross margin is small, and the company's marketing efficiency has improved under collection, and the sales expense ratio has maintained a quarter-on-quarter downward trend since 2022/Q3.
Second-tier varieties have accelerated their contribution growth: Lingze tablets have benefited from the base drug policy, and the sales curve has increased significantly in recent years. In the ranking of terminal prostate medicine (proprietary Chinese medicine) products in public medical institutions in China, Lingze tablets rose from 13th place in 2020 to 3rd place in the first half of 2023. The sales scale exceeded 200 million yuan in 2023, and we think it is expected to maintain 25% + growth.
Linglianhua capsules were converted to OTC varieties in April 2024, focusing on e-commerce channels to build brand influence in the early stages.
The impact of price cuts on Bailing film collection has weakened. After medical insurance restrictions are relaxed, promotion at the grassroots level will be accelerated. It is expected that Bailing capsules will be connected to the Internet by the end of Q2
Bailing tablets entered the Guangdong Union's proprietary Chinese medicine collection in April 2022, with a price reduction of 39%. As collection was carried out one after another, Bailing tablets revenue fell 21% in 2023. It is estimated that sales involving collection currently account for more than 70%. Sales volume of Bailing tablets remained flat in 2023. 2024Q1 increased 7.11% year-on-year, and has achieved positive growth. At the same time, since January 2024, the scope of medical insurance coverage of Bailing tablets has been relaxed, which will help Bailing tablets sink into primary medical institutions and open up more markets. In addition, the company's Bailing Capsule obtained drug approval on December 29, 2023. It is the first homologous drug of the same name approved in China. It is expected to be listed online at the end of 2024Q2, contributing to revenue growth.
Traditional Chinese medicine tablets have maintained rapid growth. In terms of traditional Chinese medicine formula granules, the company has focused on the strategic goal of “one and two wings” to lay out the Chinese herbal medicine tablet and traditional Chinese medicine formula granule business. The revenue of Chinese medicine tablets maintained a 20% + revenue growth rate from 2021 to 2023, and the revenue scale reached 450 million yuan in 2023, and continued a relatively rapid revenue growth rate of 25% + in 2024Q1; in terms of the Chinese medicine formula granule business, as of mid-April 2024, the company has completed 335 national standard provincial standard filings for traditional Chinese medicine formula granules. Revenue from traditional Chinese medicine formula granules increased by 332.99% year-on-year in 2024Q1, showing a resumed growth trend.
Profit forecasting
We expect the company's revenue for 2024-2026 to be 25.03/30.69/37.25 billion yuan, respectively, and net profit to mother of 5.30/6.91/886 million yuan respectively. The PE corresponding to the latest closing price is 20.70/15.87/12.38 times, respectively. This is the first coverage, giving it a “buy” rating.
Risk warning:
The speed of collection and decentralization fell short of expectations; refined management fell short of expectations.