The company disclosed its 2024 semi-annual performance forecast. It is expected that 2024H1 will achieve net profit of 0.695-0.76 billion yuan, an increase of 31%-43% year on year; net profit after deducting non-return to mother of 0.658-0.723 billion yuan, an increase of 34%-48% year on year, maintaining rapid growth. As the company's core strategic variety, compound Ejiao paste has always attached importance to price maintenance and price control, and the payment side is less affected by health insurance related policies. Although the company's stock price fluctuates in the short term, we believe that the company's performance and fundamentals are still steady. The Ejiao series has been straightened out, and the steady progress of the large product strategy provides a guarantee for the company's short and medium term performance. In the medium to long term, the layout of other sectors such as Royal Paddock has gradually paid off, and the company's own upward business trend has not changed.

Ejiao series: Currently, among the four core products in the company's Ejiao series, only compound Ejiao paste is included in the medical insurance catalogue. Ejiao block, Ejiao cake, and Ejiao instant powder are all non-medical insurance payment products, so the overall impact of the policy is small. 1) Ejiao block, Ejiao instant powder & Ejiao cake: Ejiao block is the basic business of the company. The goal is to maintain steady and reasonable growth. Ejiao instant powder is currently small but growing rapidly. “Peach Blossom Princess” Ejiao cake is a health food, which is basically not affected by pharmaceutical-related policies and maintains a steady growth trend; 2) Compound Ejiao paste: From the payment side, Ejiao paste is limited by health insurance policies; in addition, Ejiao paste is actively developing markets outside the county and province to promote rapid growth.

Cultivation business: “Royal Paddock 1619” is the company's first core brand to expand outward from the Qi and Blood categories. After several years of cultivation, it is now gradually improving. Varieties such as Kameka Erxian Oral Liquid and Brain Health and Kidney Supplement are included in the company's large-scale cultivation strategy. In addition, the company lays out other types of gels such as tortoiseshell gum, antler gum, and new nourishing health products such as bird's nest to form a matrix of nourishing health products outside the Ejiao qi and blood supplementation circuit to achieve diversified driving.

Maintaining a high dividend rate for four consecutive years, mid-term dividends will be launched in 2024. The company responded positively to the market value management appeal of central enterprises and maintained a high dividend level for four consecutive years. In April 2024, the company's board of directors resolution announced that it will launch a mid-term dividend plan this year to further give back to investors. As of July 23, 2024, based on a total dividend of 1.15 billion yuan in 2023, the company's dividend ratio was 3.5%, ranking among the highest in the Chinese medicine sector.

Maintain a “Highly Recommended” investment rating. We believe that short-term market disturbances will not change the company's long-term upward trend. The core products are mainly OTC and self-funded. Categories other than the Ejiao series are gradually growing, and the company has its own alpha attributes. The company achieved remarkable results in improving quality and efficiency. The net profit forecast for 2024-2026 was 1.44/1.73/2.08 billion yuan, up 24.8%/20.3%/20.2% year on year, corresponding PE was 23/19/16 times, maintaining a “highly recommended” investment rating.

Risk warning: Industry policies, terminal sales, new product promotion falling short of expectations, risk of raw material price fluctuations, etc.