Core views

On the evening of October 30, the company released its performance report for the first three quarters of 2024, achieving operating income of 4.329 billion yuan, a year-on-year increase of 26.28%, achieving net profit of 1.152 billion yuan, a year-on-year increase of 47%; achieving net profit without return to mother of 1.067 billion yuan, a year-on-year increase of 52.33%; achieving basic earnings per share of 1.79 yuan; the performance was in line with previous forecast expectations, and the profit side continued to grow rapidly, mainly benefiting from steady growth in core product sales and more refined cost control. Looking ahead to 24Q4 and '25, I am optimistic that the quality of the company's operations will continue to improve as the company focuses on the “growth and quality” management theme, strengthening the core product brand and channel building, and adding reform dividends.

occurrences

The company released a performance report for the first three quarters of 2024, and the results were in line with previous forecast expectations

On the evening of October 30, the company released its performance report for the first three quarters of 2024, achieving operating income of 4.329 billion yuan, up 26.28% year on year, achieving net profit of 1.152 billion yuan, up 47% year on year; achieving net profit deducted from non-mother of 1.067 billion yuan, up 52.33% year on year; achieving basic earnings per share of 1.79 yuan; the results were in line with previous forecast expectations.

Brief review

The quality of operations has improved steadily, and the performance is in line with previous forecast expectations

In the first three quarters of 2024, the company achieved operating income of 4.329 billion yuan, a year-on-year increase of 26.28%, and achieved net profit of 1.152 billion yuan, a year-on-year increase of 47%; realized net profit of 1.067 billion yuan, an increase of 52.33%; in 24Q3, the company achieved operating income of 1.581 billion yuan, an increase of 25.38% year-on-year, mainly due to the rapid growth of core products such as compound Ejiao paste; achieved net profit to mother of 0.414 billion yuan The year-on-year increase was 63.75%; non-net profit was deducted at 0.367 billion yuan, an increase of 74.53% year-on-year. The profit side continued to grow rapidly, mainly due to: 1) category restructuring, sales of high-margin core products grew faster; 2) the company's expenses were more refined, and the sales expenses ratio declined markedly.

Core products are growing steadily and continue to build a nourishing product matrix

Looking at the first three quarters of 2024 by product: ① Ejiao Block: Focus on core resources, launch accurate marketing projects, and create resource-based single products, and sales are expected to grow steadily; in addition, the company actively promotes digital marketing, vigorously promotes Ejiao's convenient dosage forms, and gradually expands the application field of Ejiao, and Ejiao powder continues to contribute additional increases. ② Compound Ejiao paste: The large-scale strategy has been fully implemented to achieve the trinity of “brand+marketing+academia”, maintain the leading position of OTC gas and blood supplementation, and is expected to achieve rapid growth. ③ Peach Blossom Princess: Based on the new style of play, celebrity endorsements continue to be empowered, channels are accurate, and rapid growth is expected. ④ Other pharmaceuticals and health products: In addition to the core Ejiao series products, the company's new “Royal Paddock” brand provides men's nourishing health solutions, continuously accelerates the layout of male products such as Hailong Gum Oral Liquid, Kameka Erxian Oral Liquid, and antler gum, and explores the second growth curve. The male nourishment series products are expected to grow rapidly.

Brand investment and clinical value exploration are supported, and the overall external impact is limited

We believe that the core of the out-of-hospital price comparison policy is to eliminate unreasonable price differences between medical insurance drugs inside and outside the hospital, online and offline. The price system for the company's core product compound Ejiao paste is stable, brand barriers are deep, and the overall impact is limited. At the same time, the company continues to invest in brands in the out-of-hospital market to enhance consumer stickiness; in the in-hospital market, it continues to follow the path of academic marketing, continues to explore clinical values such as cancer fatigue, and strengthens pharmacoeconomic evaluations.

Looking forward to 24Q4 and '25: Focus on the “Growth and Quality” management theme and look forward to continued improvement in business

In 24Q4 and '25, the company will continue to focus on the “Growth and Quality” management theme, further promote the four remodels, and strive to maintain the steady, moderate and positive development of the company and improve quality. Judging from the specific business pace, as the company's brand potential continues to increase, the market share of Donga Ejiao is expected to continue to grow, driving steady growth of Ejiao products; comprehensive implementation of the strategy for large varieties of compound Ejiao paste, gradual advancement of medical insurance relief restrictions, continuous improvement of evidence-based medical research on cancerous fatigue, and gradual contribution of superposition coordination are expected to maintain a rapid growth trend; Taohua Ejiao brand endorsement and channel reshaping results will gradually show, or contribute additional increases. In terms of other drugs and health products, the company will continue to carry out secondary development of large varieties with unique curative effects, such as brain and kidney supplements in the field of male liver and kidney supplements. The categories will expand in the direction of premium traditional Chinese medicine, and it is expected that the next few years will gradually bring incremental contributions to the company's performance. Considering that the company continues to promote refined cost control, the quality of the company's operations is expected to continue to improve.

Profit forecasting and investment ratings

We believe: 1) As a leader in the Ejiao industry, the brand barriers are deep. As the company actively integrates the marketing team, promotes brand value reshaping, and gradually expands the Ejiao application field, it is expected to lead the development of the Chinese nourishment category; 2) The company actively changes its strategic layout, is supported by marketing reforms, and the business quality is gradually improving. Apart from the old, the new future can be expected, and the first phase of the company's equity incentive draft is introduced to lay down long-term confidence for the company's development and is optimistic about the long-term healthy development of the company. Therefore, we expect the company to achieve operating income of 5.549 billion yuan, 65.0.4 billion yuan and 7.627 billion yuan respectively from 2024 to 2026, with net profit attributable to mother being 1.465 billion yuan, 1.762 billion yuan and 2.115 billion yuan respectively, equivalent to EPS (diluted) of 2.28 yuan/share and 2.74 yuan/share of 3.28 yuan/share, respectively. The corresponding PE is 25.2 times, 21.0 times and 17.5 times, respectively, to maintain “buying” “Enter” rating.

Risk analysis

1) Product promotion falls short of expectations: the company's sales investment has increased. If product promotion falls short of expectations, it will affect sales revenue and affect the company's profit; 2) the risk of collection and price reduction, the company's core products may further enter the collection list, reduce product prices and reduce product profits, which in turn affects the company's profit expectations; 3) Risk of price increases in raw materials and power costs: the increase in the price of the company's raw materials will cause cost pressure to rise, which in turn affects the company's profit performance; 4) Hospital diagnosis and treatment volume will fall short of expectations: after the epidemic, home diagnosis and treatment volume may be affected. This affects the sales of prescription drugs, which in turn affects the company's overall profit.