Key points of investment

The company disclosed the 2024 semi-annual report, achieving revenue of 7.817 billion yuan, a year-on-year decrease of 13.64%; net profit to mother of 0.495 billion yuan, a year-on-year decrease of 12.51%; net profit after deducting 0.47 billion yuan, a year-on-year decrease of 17.81%; single Q2 achieved revenue of 3.609 billion yuan, a year-on-year decrease of 21.94%; net profit of 0.248 billion yuan, a year-on-year decrease of 25.00%; net profit after deducting non-return to mother 0.252 billion yuan, a year-on-year decrease of 24.49%.

Industrial revenue is under pressure in the short term, and the big health business has performed well

Due to the high base in the first half of last year and the high social inventory of some products, the company's sales in the first half of this year were under pressure.

Without considering interdivisional offsets, 2024H1's pharmaceutical industry revenue was 5.079 billion yuan (yoy -19.77%, same below), gross profit margin 62.90% (-1.91pp); pharmaceutical commercial revenue was 3.741 billion yuan (-10.96%), gross profit margin 8.78% (+0.11pp); Chinese herbal medicine resource revenue 0.49 billion yuan (-16.39%), gross profit margin 8.69% (+1.96pp); Big Health revenue 0.265 billion yuan (+79.63%), gross profit margin 9.18% (+4.94pp). By treatment area, revenue from digestive and metabolic drugs was 1.585 billion yuan (-26.34%), with a gross profit margin of 59.65% (-2.07pp), mainly affected by the high base of Agastache Zhengqi Oral Liquid in the same period last year; revenue from respiratory medication was 1.574 billion yuan (+4.25%), and gross profit margin 65.02% (+5.16pp).

Continuously optimize the marketing system and enhance brand influence

In terms of marketing strategy, the company uses precise product cluster measures to drive large categories and cultivate echelon products; through academic marketing to empower terminals, the company's chain coverage rate currently exceeds 85%, 2024H1 emergency syrup OTC listing rate and primary hospital coverage rate have increased 25% and 20% respectively; strengthened cooperation on new retail platforms, laid out mainstream e-commerce platforms, added Meituan and Jingdong instant retail, and expanded B2C cooperation on the Yibao Network channel to focus on e-commerce; the brand communication strategy has been upgraded to conform to the younger market, and the new cross-border product “Agastache Xiaoxiang” is being promoted “Music”, based on QQ Music accurately reaches young consumers with urgent demand for syrup; at the same time, it also empowers sales through digital platforms.

Profit Forecasts, Valuations, and Ratings

Considering the high social inventory of some of the company's products, we expect the company's revenue for 2024-2026 to be 15.661/17.281/19.151 billion yuan, respectively, with year-on-year growth rates of 0.25%/10.34%/10.82%, respectively, and net profit to mother of 0.958/1.218/1.482 billion yuan, respectively. The year-on-year growth rates are 16.56%/27.13%/21.65%, respectively, and EPS is 1.72/2.19/2.66 yuan/share for 3 years The CAGR is 21.70%. Since the company is the leading OTC company for traditional Chinese medicine brands, it maintains a “buy” rating.

Risk warning: Risks such as policy supervision, increased market competition, cost fluctuations, R&D falling short of expectations, and falling short of sales expectations.