Key points of investment:

Under short-term pressure from the company's high base, Q3 is expected to reach an inflection point

H1 in '24: The company achieved operating income of 7.817 billion yuan, down 13.64% year on year; realized net profit of 0.495 billion yuan, down 12.51% year on year; realized net profit deducted from mother 0.47 billion yuan, down 17.81% year on year.

Q2 '24: The company achieved operating income of 3.609 billion yuan, a year-on-year decrease of 21.94%; realized net profit of 0.248 billion yuan, a year-on-year decrease of 25%, and realized net profit deducted from non-mother of 0.252 billion yuan, a year-on-year decrease of 24.49%.

Under the high base, short-term pressure is clear. The medium- to long-term inflection point is clear: the company's demand after the 23H1 epidemic increased, and some varieties were strong, forming a high base. 23H1 revenue accounted for 58% of the year, 22H1 only accounted for 51%/53% in 20-21, and 23H1 accounted for 69% and 74% of net profit after deduction of net profit. 22H1 accounts for 35% and 49% respectively. Under high base, 23H2 is under pressure. 23H2 is expected to perform at 24H2. 2 It ushered in an inflection point and returned to growth in a single quarter track.

The industrial sector is under short-term pressure under high base+inventory pressure

By sector, 24H1's pharmaceutical industry achieved sales revenue of 5.079 billion yuan, a year-on-year decrease of 19.77%; the pharmaceutical business achieved sales revenue of 3.741 billion yuan, a year-on-year decrease of 10.96%; the Chinese herbal medicine resource sector achieved sales revenue of 0.49 billion yuan, a year-on-year decrease of 16.39%; and the health sector achieved sales revenue of 0.265 billion yuan, a year-on-year increase of 79.63%. 24H1 was mainly affected by factors such as the high base for the same period last year and the high social inventory of some products.

The marketing system is continuously optimized, and the core product strategy is clear.

The company actively developed its Agastache product line, increased channels and distribution efforts, and achieved a chain coverage rate of more than 85%. Through new packaging such as Agastache Zhengqi oral liquid, capsules, granules, water, pills, flavoring pills, compounds, etc., the company adopted a differentiated strategy to promote market growth; implemented the “4 Million Project” and “8228” academic marketing strategies in the respiratory product group to increase OTC delivery rate and primary hospital coverage of products such as emergency syrup and sinusitis oral liquid, increased 25% and 20%, respectively..

Profit forecasting and investment advice

Due to the decline in revenue and profit in the first half of the year, we lowered the company's revenue for 2024/2025/2026 from 18.188/20.573/23.118 billion yuan to 17.24/19.326/21.573 billion yuan, respectively, with a growth rate of 10%/12%/12%. The company's net profit for 2024/2025/2026 was reduced from 1.105/1.409/1.765 billion yuan to 0.957/1.228/1.545 billion yuan, respectively, with a growth rate of 17%/28%/26%. Taiji Group has achieved remarkable results from the entry of Sinopharm into the reform. It continues to release large single products and second-tier varieties of Agastache + urgent herbal medicine, has sufficient potential for medium- to long-term growth, and maintains a “buy” rating.

Risk warning

Product sales and promotion fall short of expectations, industry competition increases risks, and industry policy risks.