Investment logic: Baiyang Pharmaceutical is a leading pharmaceutical commercialization platform in China. Its capabilities have been verified by the market. Currently, it is in a period of rapid growth. Through in-hospital and off-hospital two-wheel drive, it continues to dig deeper into products to promote the company's continuous rapid growth. 1) The company has outstanding marketing capabilities outside the hospital. With the continuous cultivation of billion-grade and billion-level products such as DiQiao, Hailu, Halle, and effective skincare products, there is still plenty of room for improvement; 2) The company has accelerated the layout of innovative pharmaceutical devices such as nuclear drugs, SPECT, artificial hearts, etc., and gradually ushered in a harvest period, opening up a long-term growth ceiling.

Diqiao has gained new vitality, and the potential for business outside the hospital can be expected. The company is characterized by retail channels and is deeply involved in multi-channel brand operations. 1) DiQiao: The company has been deeply involved in the field of calcium supplements for many years. The core product Diqiao has established high brand awareness among mothers and children. The revenue growth trend is good. The revenue in 2023 was 1.897 billion yuan, and the revenue CAGR in 2021-2023 reached 17.3%, accounting for 43.1% of the brand's operating revenue. With the development of a full population and multiple dosage forms, there is still room for future market share improvement, and the basic performance market is expected to remain steady. 2) Other OTC and health products: The company's products, including Hailu, Newt Shuma, and effective skincare products, are highly competitive and are currently being sold rapidly. Among them, Hailu's revenue in 2021-2023 increased from 0.3 billion to 0.64 billion, and Newt Schuma's revenue in 2020-2023 increased from 32.55 million to 83 million, and future potential can be expected.

Group incubation+external cooperation, innovative business ushered in a harvest period. Innovative pharmaceutical devices are an important development direction for the company. The layout products have entered the commercialization stage/early marketing stage one after another, and it is expected that they will continue to add momentum to the company's performance.

The product matrix for high-end devices continues to expand: 1) Artificial heart: the main treatment for advanced heart failure. It is developing relatively early in China, has a large space, and the current competitive pattern is good. Baiyang is responsible for Tongxin Medical's VAD products with excellent long-term follow-up data. It is a product that entered the commercialization stage earlier in Baiyang's innovative device matrix. By the end of 2023, surgery had been carried out in more than 50 hospitals. 2) Electromagnetic positioning puncture guidance system for ultrasound: the country's exclusive clinically proven, 360-degree real-time, accurate, radiation-free interventional navigation system with no dead spots. It has a high puncture success rate, a short learning curve, and meets clinical needs. This product is expected to help the company establish a sales system in the field of imaging equipment.

The nuclear medicine business is about to gain strength and is expected to become an important growth point for the company. Currently, the country is promoting the development of nuclear medicine. Through strategic cooperation with Radio, Baiyang obtained exclusive commercialization rights in mainland China after the launch of 99mTC-3pRGD2, the first new class 1 drug for nuclear medicine imaging diagnosis. The product has excellent clinical data and strong competitiveness, and is expected to become the company's major product in the field of innovative drugs. In addition to this, there are other nuclear drug products and SPECT equipment in the R&D stage. In the future, as the marketing process progresses, nuclear medicine-related products are expected to become an important performance growth point for the company.

The acquisition of Baiyang Pharmaceuticals added another strong growth point. With 0.88 billion cash, the company directly and indirectly held 60.199% of Baiyang Pharmaceutical's shares through the acquisition of shares in Baiyang Investment, Baiyang Yiren, and Baiyang Kanghe. Baiyang Pharmaceutical's proprietary Chinese medicine and chemical pharmaceutical business has relatively high assets. Revenue and net profit in 2023 were 0.76 billion yuan and 0.14 billion yuan respectively, and the growth rate has been steady in recent years. The total market size of its five core products is expected to exceed 10 billion dollars, and the space is vast. Baiyang Pharmaceutical also has a rich pipeline of ongoing research and development, adding a strong growth point to Baiyang Pharmaceutical.

Profit forecast and valuation: We expect the company's net profit to be 0.85 billion yuan, 1.08 billion yuan, and 1.35 billion yuan respectively in 2024-2026, with growth rates of 30.2%/25.9%/25.4%, respectively. The PE corresponding to the current stock price is 14X, 11X, and 9X, respectively. At the same time, pharmaceutical distribution companies Kyushu Express, Shanghai Pharmaceutical, and Sinopharm Co., Ltd. were selected as comparable companies. Since Baiyang Pharmaceutical is the leading pharmaceutical commercialization platform in China, with excellent brand building capabilities and omni-channel operation capabilities, it has successfully created multiple 100 million- and 1-billion-level single products, and its commercialization capabilities have been fully verified. Currently, the layout of innovative pharmaceutical devices is being accelerated. As related products enter the harvest period one after another, the long-term growth ceiling is expected to open up. First coverage, giving a “buy” rating.

Risk warning: Revenue from core products falls short of expectations; listing progress of cooperative varieties falls short of expectations; market competition increases risk.