In the second half of 2020, the company returned to exceed expectations: the company's annual revenue was 1.315 billion Hong Kong dollars, down 8.2% from the same period last year. The net profit attributable to the owners of the company was 542 million yuan, down 2.5% from the same period last year. The revenue in the second half of the year was 748 million yuan, an increase of 22.58% over the same period last year. The decline in revenue for the whole year was mainly due to the continued outbreak of the COVID-19 epidemic, which greatly affected the income of Hong Kong's local and overseas markets. The company's annual gross profit margin rose to 72.4%, mainly due to the increase in the proportion of high-margin products such as Ganoderma lucidum spore powder, and the decrease in the rate of sales expenses from 13.9% to 12.8%, which was caused by the decrease in the number of retail terminals and rent reduction for some leased properties. The large increase in related party receivables is due to the increased demand for Ganoderma lucidum spores and other immunity-boosting products in the mainland in the second and third quarters, and the slow repayment of related parties.

With the popularity of vaccines and the opening of gates, Hong Kong is expected to see high growth this year: Hong Kong is affected by both epidemic control and cliff decline, with revenue of HK $446 million in 2020, down 30.9 per cent from a year earlier, with same-store revenue down 53.8 per cent. The number of retail terminals in Hong Kong decreased by 1 to 22. We expect Hong Kong business to recover significantly this year with the increasing popularity of vaccination in Hong Kong and the expected opening of Hong Kong crossings in the second half of the year.

In the second half of the year, the Chinese market grew strongly and overseas recovered steadily: with the outbreak of the global epidemic, Tongrentang, as a time-honored brand of traditional Chinese medicine, provides traditional Chinese medicine solutions for the prevention and control of the world epidemic. Sales of more than a dozen large categories of epidemic medicine products, such as Ganmao granules, Banlangen and Huoxiang Zhengqi Water, are growing rapidly in Canada and other places, further enhancing the recognition of traditional Chinese medicine and Tongrentang brands in overseas markets. The United States has been seriously affected by the epidemic and its performance has declined significantly, dragging down the overall overseas income level, which is basically the same as in the same period last year. The Chinese market is growing brightly, with an annual income of 431 million Hong Kong dollars, an increase of 41.9%. The growth mainly comes from the epidemic period. Products that improve immunity are welcomed by the market, among which Ganoderma lucidum spore powder reached its sales peak in the second and third quarters. Considering that the epidemic in the Chinese market is basically under control, but with a high base in 2020, performance growth is expected to be relatively stable in 2021.

Adjust the target price to HK $14.80, buy rating: as the global novel coronavirus epidemic is gradually brought under control, the company's performance in 2021 may continue to recover, adjusting the target price to HK $14.8, corresponding to 18 times the forecast EPS in 2021; valuation less net cash, corresponding to 19 times in 2020, there is 34.3% room for increase compared to the current price, maintaining the buy rating.