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Incidents:

The company released the 2024 semi-annual report: in the first half of 2024, it achieved operating income of 0.91 billion yuan, +6.44%; net profit of 0.137 billion yuan, +28.23%; net profit after deducting non-return mother of 0.111 billion yuan, +26.54% year over year; at the same time, the company issued the “Notice on Wholly-owned Subsidiaries Receiving a Notice of Acceptance of Drug Registration”: Guangdong Fangsheng Pharmaceutical, a wholly-owned subsidiary of Fangsheng Pharmaceutical, completed long toxicity tests on blood nourishment and pain relief tablets (formerly known as: Noniton granules) It also submitted a marketing license application to the State Drug Administration. On September 13, 2024, Jianmeng Pharmaceutical received the “Notice of Acceptance” for blood nourishment and pain relief granules.

Analyze reviews

The new product blood nourishing and relieving wind and pain relief granules has submitted a marketing license application. The future market space of this product is blood nourishing and pain relief granules based on the addition and subtraction formula of the representative formula “Shengjiao soup” by Mr. Zhang Xichun, a famous modern Chinese medicine practitioner. They can improve insufficient blood supply to the brain, quickly relieve symptoms of headache and dizziness, and can be widely used in clinical treatment of recurrent tension headaches. There are many headache-related diseases, and there are still major deficiencies in diagnosis and treatment. According to the “Chinese Migraine Diagnosis and Treatment Guidelines (Chinese Medical Association Neurology Branch 1st Edition)”, migraine is a common chronic paroxysmal brain dysfunction disease. About 1.04 billion people worldwide suffer from migraine. The lifetime prevalence rate for men is about 10%, and the annual prevalence of migraine in China is about 9%. There is a lot of room for future development of blood nourishing, wind and pain relief granules, and the market prospects are promising.

Profit growth in the second quarter was impressive, and gross margin increased significantly

The company's 2024Q2 revenue was 0.472 billion yuan, +12.77% year over year; net profit to mother was 0.067 billion yuan, +55.26% year over year; net profit without return to mother was 0.057 billion yuan, +48.26% year over year. The company adheres to the implementation of the “338 Major Product Development Plan” as the center, fully exploiting and activating the potential of management and employees to achieve performance growth.

24 In the first half of the year, the company's overall gross margin was 72.66%, +3.47 percentage points year on year, raw material procurement costs for core products decreased; the cost ratio for the period was 55.82%, +0.16 percentage points year on year; of which sales expenses ratio was 41.78%, year on year -0.31 percentage points; management expense ratio (including R&D expenses) 13.62%, +0.54 percentage points year on year; financial expense ratio was 0.42%, -0.07 percentage points year on year; net operating cash flow was 0.066 billion yuan, year on year -220.92 percentage points %.

Core products are growing steadily, and market expansion is progressing steadily

In the first half of the year, the performance of the pharmaceutical sector grew steadily. In terms of traditional Chinese medicine, sales of garcinia cambogia tablets achieved a year-on-year increase of nearly 5%; in terms of chemicals, sales revenue of Xuanqijian bone tablets increased by more than 430% year on year, successfully breaking through 50 million yuan; sales revenue of children's Jingxing cough tablets was about 45 million yuan, an increase of more than 150% year on year; in terms of chemicals, sales revenue of Ezemib tablets increased by more than 10% year on year., sales volume of approximately 0.144 billion yuan.

More than 260 public medical institutions were newly covered, with total coverage of more than 1,500 public medical institutions, including more than 1,000 grade hospitals, achieving sales revenue of about 45 million yuan, an increase of more than 150% over the previous year; Xuanqijian Bone tablets added coverage to more than 300 public medical institutions, covering a total of more than 900, of which there were more than 500 grade hospitals, with revenue exceeding 50 million yuan, an increase of more than 430% over the previous year. The company has cultivated products that have sold over 100 million dollars a year, such as garcinia cambogia tablets, powerful loquat cream (honey extract), hesetong dispersible tablets, and ezhemibu tablets. The company continues to increase investment in innovative traditional Chinese medicine, and strives to achieve the sales target of over 100 million for two new single products, Jingxing Children's Cough Relief Granules and Xuanqijian Bone Tablets, within the year.

R&D innovation and core business focus promote the continuous improvement of the company's competitiveness

Continue to increase investment in R&D. The innovative traditional Chinese medicine drug project Yiqi Tumor Eliminating Granules obtained the “Drug Clinical Trial Approval Notice” from the Drug Administration; a supplementary application for changes to the safety and other content of the Gastric Ulcer Healing Granules was also approved. At the same time, the company has also made many advances in the field of chemical raw materials. Various products such as indobufen and edoxaban toluene sulfonate have successively received notices of acceptance of marketing or additional information, which has laid a solid foundation for the company's future development.

Continued focus on core business. Focus on core business and clarify future orientation to enhance competitive advantage and profit efficiency. Tengwangge Pharmaceutical's revenue increased by more than 10% year on year, and achieved net profit of more than 32 million yuan, an increase of more than 20% year on year, which is close to the level of the full year of 2023. The main business revenue of Xiangya Pharmaceutical grew steadily.

Investment advice

We are optimistic about the steady release of the company's innovative varieties of traditional Chinese medicine. On the revenue side, based on the company's performance in the first half of 2024, and considering the impact of collection pressure on the company's product revenue scale, we lowered our previous forecast and added a 26-year forecast. The estimated 24-26 revenue is 1.737/2.026/2.364 billion yuan (the value was 2.23/2.701 billion yuan before 24-25), up 7%/17%/17% year over year, respectively. On the profit side, the company's product structure continues to be optimized, and gross margin has increased steadily. We maintained our previous profit forecast and added another 26 years According to the forecast, net profit due to mother for 24-26 is 0.225/0.3/0.352 billion yuan, respectively, up 21%/33%/17% year-on-year, respectively, and the corresponding valuation is 19X/14X/12X. Maintain a “buy” investment rating.

Risk Alerts

Policy change risk; Product quality control risk; R&D risk