Key points of investment

Incident: Tasly issued the “Prompt Notice Concerning the Signing of the “Share Transfer Agreement” and Change of Control by the Controlling Shareholders and Actors. The controlling shareholders of the company, Tianshun Group and its co-actors Tianjin Heyue, Tianjin Kangshun, Tianjin Hongxun, Tianjin Tongming, Tianjin Shunqi, and Tianjin Shanzhen intend to transfer 28% of their shares to China Resources 39 through an agreed transfer. The transfer price is RMB 6.212 billion. Furthermore, after the registration date of the shares transferred to China Resources 39, the Tasley Group promised to relinquish voting rights corresponding to 5% of its shares held by it, so that it controlled no more than 12.5008% of the voting rights ratio. Meanwhile, Tasly Group plans to transfer 5% of its shares in Tianshili to Guoxin Investment through an agreed transfer. The transfer price is RMB 14.85 per share, and the transfer price is RMB 1.109 billion. After the transaction is completed, the controlling shareholder of the company will be changed to China Resources 39, and the actual controller will be changed to China Resources.

The deal solidifies Tianshili's position as an innovation leader and helps China Resources 39 become a leader in the Chinese medicine industry. China Resources 39 is the brand OTC leader, and Tianshili is the leader in cardiovascular and innovative traditional Chinese medicine. With China Resources 39's support in terms of capital, marketing and policy resources, Tianshi will be able to improve its competitiveness faster and obtain better development prospects.

This transaction will help the two sides to leverage the synergy of the traditional Chinese medicine industry chain, empower each other in the fields of Chinese herbal medicine cultivation, innovative research and development, intelligent manufacturing, channel marketing, etc., and achieve a stronger chain extension of the traditional Chinese medicine industry chain. The two sides will use the joint venture as the carrier to carry out the iterative upgrade of the world's first multi-modal large-scale model of traditional Chinese medicine research and development, “Digital Intelligence Materia Medica”, combining traditional Chinese medicine theory and clinical experience with digital technology to construct a new paradigm for digital traditional Chinese medicine research and development.

The two sides will establish a drip pill technology innovation consortium to promote the iterative upgrading of drip pill technology; and build Tianshili into a high-tech, high-quality specialized production base for new Dripping pill dosage forms to provide industrialized services to more enterprises.

The issue of competition in the industry was resolved within 5 years after the transaction was completed. Tasly's pharmaceutical retail chain business competes with the retail chain business of China Resources Pharmaceuticals, a subsidiary of China Resources in China. Dzopiclone tablets produced by Tasly compete with zopiclone tablets produced by China Resources 39 controlled by China Resources. China Resources 39 and its controlling shareholder China Resources Pharmaceutical Holdings and the actual controller China China Resources have issued a “Letter of Commitment to Avoiding Competition in the Industry”. Within five years after the completion of this transaction, the existing interbank competition issues between the committing party and its controlled subsidiaries and companies controlled by Tasman and its controlled subsidiaries will be resolved in accordance with legal procedures, including but not limited to trusteeship, asset (equity) transfer, and business integration.

Maintain a “buy” rating. Considering the impact of the company's assets and China Resources 39 restructuring, we slightly lowered the company's 2024 and 2025 results, and slightly increased the 2026 results. We expect net profit to be 1.342/1.536/1.737 billion yuan in 2024-2026, up 25.27%/14.46%/13.12% year over year, and EPS of 0.90/1.03/1.16 yuan, corresponding to PE16.57x/14.47x/12.80x. Considering that the company has strong brand power and R&D strength, it maintains a “buy” rating.

Risk warning: R&D innovation risk, policy adjustment risk, merger and acquisition integration risk