Key points of investment:
China Resources enters the market and empowers it to become the first stock in the Yinfa economy
After a run-in period of “100-day integration” and “one-year integration,” the two companies have now entered the “three-year integration” stage. 100-day integration stage: 1. Major moves continue, and the person at the helm of China Resources empowers Kunming Pharmaceutical.
Appoint the head of China Resources Department as the chairman and president of the company. 2. Determine the new strategic goal of “building the first stock in Yinfa Economic Health, becoming a leader in chronic disease management and a leader in quality Chinese medicines”. One-year integration phase:
1. Establish three major divisions: “Kunming Traditional Chinese Medicine 1381” Division, “KPC · 1951” Division, and Sanqi Oral's “777” Division; 2. Release the strategic development plan for the next five years (2024-2028):
With the 37 industrial chain as the core, it is based on aging health, expanding the field of chronic disease management, and becoming the first stock in the silver hair health industry. Through endogenous development and epitaxial expansion, we strive to double operating income by the end of 2028, reach 10 billion yuan in industrial revenue, and strive to become the first stock in the Yinfa Health Industry.
3. Brand building: Release the “777” brand. 37 is 777. 4. Channel and commercial cultural values:
Gradually introduce China Resources 39's commercial channel system, and complete the integration and construction of sales channels for Chinese medicines across the country.
The company plans to acquire 51% of Kunming Torch's shares in cash. The competitive pattern of Hesketong Oral Medication continues to optimize the “777 Division” Hesketong Oral Series. The core users of the “777 Division” Hesketong Oral Series are the elderly, and the future market space is huge as the population ages. The company solved the competition problem between the core product Hesetong softgels “Luotai” and China Resources Shenghuo “Liangwang”, and is expected to differentiate the layout and explore application scenarios in the future. Hesugetong granules, drops, and tablets all have a layout. The “Kunming Traditional Chinese Medicine 1381” premium Chinese medicine series is also expected to achieve high growth, such as Shenlingjian Spleen and Stomach Granules, Liver Relief Granules, and Fragrant Sand Stomach Calming Granules.
Injections are multiplied by injections to break the wind limit, and seize the collection window period to achieve rapid development.
Injectable hemosideron (freeze-dried) was accompanied by the relaxation of medical insurance restrictions, and the product stopped falling and returned to an upward channel. In 2023, injectable hemosideron (freeze-dried) maintained steady growth, and sales increased 24.62% year-on-year.
The company's Hesetong injections actively participated in the collection of national and inter-provincial alliances. In 2021, the Hubei 19 Proprietary Chinese Medicine Alliance won the bid price of 200mg of Hesetong (freeze-dried) for injections of 9.22 yuan, a price reduction of 54.07%, achieving a two-year market monopoly within the bid. After the two-year collection period of the Hubei Union ends, we expect to renew the contract in the second half of this year. The price reduction for products with a good competitive pattern is reasonable. Subsequent Guangdong Union Collection and Beijing-Tianjin-Hebei “3+N” collection company Hesetong (freeze-dried) all won the bid, with a remarkable advantage in exchange for price.
Profit forecasting and investment advice
We forecast the company's revenue for 2024/2025/2026 to be 85.44/95.44/10.722 billion yuan, respectively, with a growth rate of 10.92%/11.70%/12.35%. The company's net profit for 2024/2025/2026 was 589/7.7/981 million yuan, respectively, with a growth rate of 32%/31%/27%. We are optimistic that China Resources will empower the Pharmaceutical Group and the strategic core of building the first stock in the Yinfa Health Industry in the future. It will cover for the first time and give it a “buy” rating.
Risk warning
The risk of product sales and promotion falling short of expectations, the risk that the price reduction of key product collections exceeds expectations, the risk of R&D failure or progress falling short of expectations, and the risk of raw material price fluctuations.