Market and brand leaders that adhere to heritage and innovation to maintain continuous business growth; we expect the 2023-26E company's revenue and profit growth rate CAGR to reach 17.7%/20.1%;

Effective channel management paves the way for the price of drugs to treat hemorrhoids to enter a cycle of price increase;

The first coverage gave a “buy” rating, and the DCF target price was 37.49 yuan.

Adhering to “inheritance and innovation” around anorectal health needs: We believe that Ma Yinglong relied on brand influence in the anorectal field and the structural advantages of the product industry to create the image of “Sinopharm's new influencer” through a series of “remarkable” strategies, and maintained the youth and vitality of the 400-year-old brand. We expect the CAGR for the company's 23-26E revenue and profit to be 17.7% and 20.1%, respectively. According to the company's mid-term financial report for '24, among the company's products, drugs to treat hemorrhoids are the main source of revenue for the company's pharmaceutical industry (1H24 accounts for more than 70% of the pharmaceutical industry's revenue). According to the 2023 annual report, hemorrhoid drugs have experienced channel reform and inventory management in the past year, and their inventory level fell to the lowest level since 2016-17. We believe that as a market leader, 2023-26E's revenue CAGR for hemorrhoid drugs is expected to reach 15.1% as the company's products enter the price increase cycle. The company's big health business mainly includes eye health and skin care products. As a supplement to the production of core drugs in the pharmaceutical manufacturing field, it is expected to grow by 34.8% CAGR during the 2023-26E period. Driven by innovative categories, we expect the pharmaceutical industry to grow at a CAGR of 20.0% in 2023-26E.

The medical service and pharmaceutical business expands the entire anorectal industry chain: We believe that the medical service business, including diagnosis and treatment centers, is an important fulcrum for the company to expand the entire anorectal industry chain. We anticipate that despite being affected by industry policies, it will be difficult for healthcare business revenue to grow rapidly. However, as the diagnosis and treatment center continues to expand and the company's brand effect, we believe its revenue is expected to continue to grow at a certain level. Ma Yinglong's third largest revenue pillar is its pharmaceutical commercial business, which covers drug retail (pharmacy) and drug logistics. By adjusting the downstream customer structure and increasing the number and scale of products supplied, the company's business goal is to improve the efficiency of the pharmaceutical distribution business. We expect the pharmaceutical commercial business revenue to grow 20.0%/15.0%/10.0% year over year in 2024E/ 25E/ 26E.

The first coverage gave a “buy” rating. The DCF target price is 37.49 yuan (WACC 9.0%): our target price corresponds to the company's 2025 24x PE valuation, which is slightly higher than the industry average 23x PE valuation level. Considering Ma Yinglong's leading brand power for hemorrhoid treatment products and the development potential of the entire “medical+pharmaceutical+health” industry chain, we think it is reasonable to enjoy a certain valuation premium. For the first time, we covered giving a buy rating.

Risk warning: Pharmaceutical policy risks; the effects of price increases for leading products and channel inventory management falling short of expectations; risk of rising costs; falling short of expectations in cultivating or selling new products; safety risks of major health products; risks of macroeconomic impacts; environmental risks.