Deeply involved in the field of medicinal fungal pharmaceuticals, the Wuling series is the main force for growth. The company has mastered the industrial production technology of the medicinal fungus Wuling Ginseng and has successfully developed a number of new types of traditional Chinese medicine. It has now gradually formed a strategic layout where the finished medicine is “integrated” and the Chinese medicine tablets and Chinese medicine granules are the “two wings”. Currently, the company's Wuling series products with Wuling bacteria powder as the core component account for about 60% of revenue, and 2024H1 has achieved sales revenue of 0.836 billion yuan (+29.15% yoy). In the future, it will continue to strengthen the product matrix and expand the number of Wuling series products to 10.

The three core varieties have obvious advantages in basic medicine and medical insurance. The R&D+ channel is two-wheel drive, and the collection volume is imminent. The company mainly focuses on the three core varieties of Wuling capsules, Bering tablets, and Lingze tablets for product development and market development. Overall, the core advantages of the three core products are: the mechanism of action of the ingredients is clear, supported by evidence-based medical evidence, excellent efficacy, high safety, and they have all entered the national essential drug catalogue, medical insurance catalogue and various guidelines, and are widely used clinically. Looking back by product, the growth points of each of the three major products are:

1) Wuling capsules: In the short to medium term, the “price for quantity” of large packaging has been verified, and production and sales are growing rapidly. On the revenue side, the price of collection was reduced by about 20%, and the sales revenue of 2024H1 Wuling capsules increased by 28.86% year on year; on the profit side, the gross margin of the Wuling series (about equal to Wuling capsules) has stabilized at over 86% since collection in 2022, and profit margins are basically unaffected by the price reduction in collection. In the long run, there are three sources of sustained growth in performance. One is strengthening hospital coverage in collection areas or regions with poor sales, the second is OTC market development, and the third is developing Alzheimer's indications twice.

2) Bering tablets: Medical insurance indications have been relaxed to “patients with chronic bronchitis and chronic renal insufficiency”; the new dosage of Bering capsules will be marketed from 2024Q3.

3) Lingze tablets: An innovative drug for the treatment of benign prostatic hyperplasia (BPH), a second-class protected variety of traditional Chinese medicine, has maintained a good growth rate in recent years. 2024H1 sales increased by 30.84% over the same period last year.

Chinese medicine tablets and Chinese medicine formula granules are growing strongly, and are expected to contribute to the second growth. The Chinese medicine tablet series accounts for the company's second-largest revenue. It accounts for about 24% of revenue for the full year of 2023, and is produced by the wholly-owned subsidiary Zoli Baicao Traditional Chinese Medicine. 2024H1 Due to the popularity of the Internet tablet “Wumei Tang 2.0”, the company's Chinese medicine tablet series achieved sales revenue of 0.389 billion yuan, an increase of 57.11% over the previous year. The traditional Chinese medicine formula granule series was affected by the conversion of national standards and provincial standards in 2023, and sales revenue declined, but the company has now completed 382 national and provincial standard registrations, resumed rapid growth in 2024, and 2024H1 increased 256.73% year-on-year.

Profit forecasting and investment advice

The company's revenue for 2024-2026 is estimated to be 2.585 billion, 3.249 billion, and 4.103 billion yuan, respectively, and net profit due to mother is 0.53 billion, 0.697 billion and 0.9 billion yuan, respectively. The corresponding EPS is 0.76 yuan, 0.99 and 1.28 yuan, respectively, covered for the first time, giving it a “buy” rating.

Risk warning

1. Market competition increases risk;

2. Risk of failure in secondary development of core varieties;

3. Risk of changes in industry policies;

4. The risk that the profit forecast is unfounded or falls short of expectations.