The main reasons why we are optimistic about the company at the current juncture: 1) National reform is deepening, and “integration+efficiency improvement” is expected to continue to be realized. We are optimistic about the gradual implementation of performance, and 2025 is expected to be the first year of performance release; 2) Kunyao Group has excellent texture: as a leader in 37 formulations, the company is expected to develop further in the “silver hair” economy; Chinese medicine has been passed down for 600 years, and the product is expected to gradually show value through China Resources 39 commercial channels.

A century-old Chinese medicine brand, China Resources 39 has gained new vitality by entering China Resources 39. The 100-day integration was successfully completed, and a new stage of one-year integration has been entered. As the integration with China Resources 39 progresses further, the company's core business continues to focus on the field of chronic disease management and treatment, and is deeply involved in the specialty Chinese medicine business, simultaneously promoting the integration of the company's CHC business and products into the 39 commercial channel, increasing product terminal coverage, expanding brand influence, and continuously stimulating the company's development potential. We believe that strong brands and channels will accelerate product growth, that the central enterprise platform will empower the new strength of KPC Group, and that performance flexibility will gradually be unleashed.

Aging Health - Chronic Disease Management “Premium Chinese Medicine” dual platform to open up a new development situation. With the vision of “a leader in the Yinfa Health Industry”, KPC is committed to becoming a “leader in the field of aging health and chronic disease management” around the strategic core of “inheriting quality Chinese medicine, with the 37 industry chain as the core, and expanding the field of chronic disease management”, focusing on building two major platforms: chronic disease management centered on 37 series products and fine Chinese medicine with the Kunming Traditional Chinese Medicine 1381 series as the core, and is committed to becoming a “leader in the field of aging health - chronic disease management” and “leader in quality Chinese medicine”. 1) The trend of population aging is accelerating, and the development trend in the field of chronic diseases is severe. The company's chronic disease management platform lays out the silver hair economy ahead of schedule, focusing on the fields of chronic diseases and age-related diseases. It focuses on a series of cardiovascular, cerebrovascular, bone and other products, including blood clotting, with “in-hospital+out-of-hospital” and “prescription+retail” two-wheel drive. 2) The premium Chinese medicine platform empowers the new strength of Kunming Traditional Chinese Medicine 1381”, and gold single products drive category clusters. Kun Traditional Chinese Medicine currently has 143 drug approval numbers and 21 exclusive products. It has 642 years of deep traditional Chinese medicine culture. Using the synergy effects of China Resources 39 in consumer insight, brand operation, and terminal coverage, it continues to promote the construction of big brands, enhance brand awareness, create a fast-digesting marketing model, and create a high-quality Chinese medicine platform.

Profit forecast: The company enters the market lightly, and performance flexibility is expected to gradually be released. We expect the company's net profit to be 0.526/0.665/0.835 billion yuan respectively in 2024-2026, with year-on-year increases of 18.3%, 26.3%, and 25.7%, respectively, and PE 22x, 17x, and 14x, respectively. We are optimistic about the company's long-term development, covered for the first time, and gave it a “buy” rating.

Risk warning: Drug collection risk, Chinese herbal medicine price increase risk, risk of sales falling short of expectations, risk of integration falling short of expectations after acquisition.