Incident: 1) On November 29, the company released the “2024 Restricted Stock Incentive Plan (Draft)”. The company plans to grant 1.25 million restricted shares to 9 directors and executives, accounting for approximately 0.22% of the company's total share capital on the day the draft incentive plan was announced, at a grant price of 10.96 yuan/share.

2) On November 29, the company issued the “2024 Employee Stock Ownership Plan (Draft)”. The company plans to grant restricted shares of no more than 21.441,322 million yuan (inclusive) to no more than 189 people. This time, it plans to use 1.956325 million shares of the repurchased shares, accounting for 0.34% of the company's total share capital on the day the draft employee shareholding plan was announced. The grant price was 10.96 yuan/share.

Publish an equity incentive plan to bind the interests of the core team. The company plans to grant 1.25 million restricted shares to 9 directors and executives, accounting for approximately 0.22% of the company's total share capital on the day the draft incentive plan was announced. The grant price is 10.96 yuan/share.

The company-level performance assessment requirements are: based on deducting non-net profit in 2023, the net profit growth rate should not be less than 32% in 2025, and the net profit growth rate should not be less than 45% in 2026. According to the lowest estimate of the growth rate, net profit after deduction of non-return to mother for 2025/2026 (excluding the impact of current year's equity incentives and employee shareholding plan costs) was 0.705/0.775 billion yuan, respectively, the 2023-2025 net profit CAGR of about 14.89%, and the 2023-2026 net profit CAGR after deducting non-return to mother was approximately 13.19%.

The sales restriction factors for individual level annual performance assessment scores of 80 points (inclusive) or above, 60 (inclusive) -80 points, and 60 points or less are 100%, 80%, and 0%, respectively.

Release employee stock ownership plans to boost employee confidence. The company plans to grant restricted shares of no more than 21.441,322 million yuan (inclusive) to no more than 189 people. This time, it plans to use 1.956,325 million shares of the repurchased shares, accounting for 0.34% of the company's total share capital on the day the draft employee shareholding plan was announced. The grant price was 10.96 yuan/share. Among them, the total number of shares subscribed by the four directors, supervisors, and executives was up to 0.0.490501 million shares, accounting for 25.07% of the employee shareholding plan, and 185 middle management and core technology (business) executives subscribed for up to 1.465,824 million shares, accounting for 74.93%. The company-level and individual-level assessment requirements are the same as the equity incentive requirements described above.

Investment advice: Ling Rui Pharmaceutical is the leading Chinese medicine paste in China. The brand value is settled, and it has a multi-level and wide-ranging product line. In the future, it will continue to benefit from the expansion of the orthopedic drug market brought about by deepening domestic aging. The company's marketing integration efforts will focus on core varieties, and it is optimistic that profit flexibility will be released under improved product structure and cost optimization. The company is expected to achieve revenue of 3.672/4.153/4.66 billion yuan in 2024-2026, up 11%/13%/12% year on year; realized net profit to mother of 0.693/0.837/0.99 billion yuan, up 22%/21%/18% year on year, respectively; and the corresponding PE valuation is 18/15/12X, maintaining an “increase” rating, respectively.

Risk warning: macroeconomic fluctuation risk; policy risk; increased industry competition; risk of cost fluctuations; product promotion falling short of expectations; R&D risk.