Incident: 1) Recently, the company announced a plan to repurchase the company's shares. The company plans to use its own capital to repurchase the company's shares in an amount not less than 25 million yuan (inclusive) and no more than 50 million yuan (inclusive), at no more than RMB 48 per share; 2) On July 23, 2024, Yusen Pharmaceutical and Jichuan Pharmaceutical signed a strategic cooperation agreement in Shanghai.

The repurchase amount is 25 million-50 million yuan, and the maximum repurchase price is 48 yuan/share. According to the company's announcement, based on the minimum repurchase amount of 25 million yuan and the upper limit of the repurchased share price of 48 yuan/share, the estimated number of shares to be repurchased is about 0.5208 million shares, accounting for 0.06% of the company's current total share capital; based on the maximum repurchase amount of 50 million yuan and the upper limit of the repurchased share price of 48 yuan/share, the estimated number of shares to be repurchased is approximately 1.0417 million shares, accounting for 0.11% of the company's current total share capital.

The buyback shows confidence in the company's continued stable development in the future and recognition of intrinsic value. According to the company's announcement, based on confidence in the company's future development prospects and basic judgment on the company's internal value, in order to maintain the interests of investors, enhance investor confidence, establish a perfect long-term incentive mechanism, and effectively integrate shareholders' interests, company interests and employees' interests to help the company's healthy and long-term development, based on confidence in the company's future development and basic judgment of the company's internal value, the company plans to use its own funds to repurchase some of the company's shares through centralized bidding transactions to implement employee shareholding plans or equity incentives.

The company signed a strategic cooperation agreement with Tamasen Pharmaceutical, and BD continues to advance. According to the WeChat account of Yusen Pharmaceutical, on July 23, 2024, Yusen Pharmaceutical and Jichuan Pharmaceutical signed a strategic cooperation agreement. The two sides plan to carry out a series of in-depth cooperation in the development of innovative traditional Chinese medicine drugs, especially in the fields of children, breathing, gynecology, and digestion. According to the official website of Yusen Pharmaceutical, Yusen Pharmaceutical has a technology innovation platform for the entire industry chain, including early detection, research and development, and pilot production of new traditional Chinese medicines. It has been rated by third party agencies as “China's Top 10 Traditional Chinese Medicine R&D Strength” units for many years. It is currently developing 22 new drugs with independent intellectual property rights, including 12 Phase II clinical research projects, and is one of the institutions with the largest reserves of new traditional Chinese medicine projects in China.

Investment advice: The company is deeply involved in the fields of heat cleansing, detoxification, and pediatric medication. The competitive advantage of core products is obvious. As second-tier varieties gradually gain strength and BD products continue to be introduced, it may be expected to create a new growth curve for the company. We expect the company to achieve operating income of 10.002 billion yuan, 11.01 billion yuan, and 12.019 billion yuan in 2024-2026, and net profit to mother of 3.035 billion yuan, 3.399 billion yuan, and 3.738 billion yuan, with year-on-year increases of 7.5%, 12.0%, and 10.0%, respectively. The corresponding EPS is 3.29 yuan, 3.69 yuan, and 4.06 yuan respectively. The PE multiples corresponding to the current stock price are 9.4X, 8.4X, and 7.6X, respectively. Considering the obvious competitive advantage of the company's core products, second-tier varieties are expected to gradually gain strength and maintain a “buy” rating.

Risk warning: policy risk, risk of increased industry competition, risk of introducing BD projects less than expected, risk of collection price reduction.