Core views
On the evening of March 22, the company released its 2022 annual results announcement. It achieved revenue of 5.992 billion yuan for the full year of 2022, an increase of 10.95% over the previous year, and achieved relatively steady growth even under the repeated influence of the epidemic in various regions. Among them, the parent company and domestic subsidiaries maintained good growth, and the subsidiary Tongrentang Sinopharm also achieved rapid recovery in the second half of the year; achieved net profit of 583 million yuan, an increase of 14.91% over the previous year. The rapid increase on the profit side of the profit side of the subsidiary was mainly due to: 1) the profit side of the subsidiary's performance achieved a steady increase; looking at the overall performance of the subsidiary, the profit side achieved relatively good growth; looking at the overall performance of the subsidiary; The company's 22-year performance growth exceeded previous expectations.
occurrences
The company released the 2022 annual results announcement
On the evening of March 22, the company announced its 2022 annual results announcement. It achieved revenue of 5.992 billion yuan for the full year of 2022, an increase of 10.95% over the previous year; achieved net profit of 1,002 billion yuan, an increase of 15.55% over the previous year; and achieved net profit of 583 million yuan, an increase of 14.91% over the previous year. The performance growth exceeded previous expectations.
Brief review
H2 achieved high growth on the profit side, and the results for the full year of '22 exceeded expectations
Overall, the company achieved a 10.95% year-on-year increase in revenue for the full year of 2022, and achieved relatively steady growth under the repeated influence of the epidemic in various regions. Among them, the parent company and domestic subsidiaries maintained good growth, and the subsidiary Tongrentang Sinopharm also achieved rapid recovery in the second half of the year; net profit increased 15.55% year-on-year, and the return mother's net profit increased 14.91% year on year. The rapid growth on the profit side was mainly due to: 1) the company actively reduced costs and increased efficiency, and gross margin increased steadily; 2) the profit side of subsidiary performance achieved relatively good growth.
Looking at the situation in the second half of the year, H2 achieved revenue of 2,977 million yuan in 2022, an increase of 13.01% over the previous year, and net profit of 265 million yuan, an increase of 37.95% over the previous year. The rapid growth rate on the revenue and profit side was mainly due to the good recovery of overseas business. The subsidiary Tongrentang Sinopharm H1 was affected by the outbreak of the Hong Kong epidemic. The supply of core products in the mainland, Hong Kong and Macao regions was greatly affected, but with the gradual relaxation of epidemic control measures in Hong Kong in the second half of the year, overseas customs clearance was gradually achieved at the end of the year, and the epidemic in most overseas regions was gradually achieved Normalized development has been achieved, and Tongrentang Sinopharm achieved a rapid recovery in revenue and profit in the second half of the year.
Continuing to deepen the large variety strategy, I am optimistic that fundamental management will continue to improve in 2022. The company will achieve 10 varieties with sales of over 100 million and 60 varieties with sales of over 5 million. The company will continue to deepen its large-scale variety strategy and carry out marketing activities through large-scale industry exhibitions such as Xidinghui, Sipp Club, and the West Lake Forum to promote the steady growth of large varieties. Overall, in '22, the company actively overcame the impact of the epidemic. With the exception of the short-term sales revenue of the Liuwei Dihuang pill series and the bulgur detox series, the other major varieties basically achieved steady growth. The Jinqiu Renal Air Pill series, the Nishihuang pill series, the Ejiao series, the cold and heat freshener series, and the live drink series achieved year-on-year increases of 1.71%, 4.07%, 10.38%, 11.00%, and 17.17%, respectively. Among them, the good growth of the cold freshener pellet series and the raw blood drink series mainly benefited from further adjustments related to the Q4 epidemic prevention policy. Cold respiratory products and post-healing medicines were mainly affected by further adjustments related to the Q4 epidemic prevention policy. Cold respiratory products and post-healing medicines were mainly affected by further adjustments related to the Q4 epidemic prevention policy. There has been an increase in demand. At the same time, taking into account the drug demand for the full cycle of drug use before, during and after the epidemic, the company continued to build a “prevention, control and anti-nutrition” variety group, classified and managed varieties, and actively carried out marketing activities on themes such as “epidemic prevention and resistance”, “caring for baby health”, and “gel nourishing health”. Relying on terminal empowerment service packages, the company continuously increased customer stickiness and boosted the company's product sales growth. We believe that in the context of optimizing the epidemic prevention policy and recovering consumption, as the company continues to deepen its diversification strategy, it is expected that the market position and share of the company's core products will continue to improve in 23 years.
Gross margin increased steadily, and various expense ratios remained normal. In 2022, the company's comprehensive gross margin was 43.26%, up 0.83 pp from the previous year, and maintained a steady increase; the sales expense ratio reached 15.15%, up 1.47 pp from the previous year, mainly due to rising labor costs and increased terminal promotion activities; the management expense ratio reached 8.07%, a year-on-year decrease of 0.78 pp, and the fee control effect was ideal. The accounts receivable turnover ratio declined from 6.88 at the end of 2021 to 6.79 at the end of 2022, and the inventory turnover ratio increased from 1.94 at the end of 2021 to 1.97 at the end of 2022. The level of accounts receivable and inventory turnover remained stable; the rest of the financial indicators were basically normal.
Profit forecasting and investment ratings
We believe that the company relies on the Tongrentang century-old brand, is rich in diverse resources and has deep operating barriers. As the company's large variety strategy and marketing reforms continue to advance, the company's long-term steady growth can be guaranteed. We expect the company to achieve operating revenue of 6.788 billion yuan, 7.704 billion yuan and 8.758 billion yuan respectively in 2023-2025, with net profit of 660 million yuan, 749 million yuan and 852 million yuan respectively, equivalent to EPS (diluted) of 0.51 yuan/share, 0.58 yuan/share and 0.66 yuan/share, respectively, compared with the same period last year. The increases were 13.1%, 13.3%, and 13.5% respectively, and the corresponding PE was 10.8x, 9.5x and 8.4x respectively, maintaining the “buy” rating.
Risk analysis
1. Risk of COVID-19. Currently, the domestic epidemic situation is still fluctuating. It will affect industrial production, logistics and express delivery, etc., which may affect the production, logistics and sales of the company's products, which in turn will affect the company's performance; 2. The risk of drug price reduction, competitive markets such as the company's core products may intensify, which in turn affects the company's profit expectations; 3. The risk of fluctuations in raw material prices of traditional Chinese medicine products is obvious. Currently, prices on the cost side of traditional Chinese medicine products remain high, and raw material prices may rise further, leading to a further increase in cost pressure, which in turn affects the company's performance; 4. The reform falls short of the expected risks. The company is actively promoting the reform process, but there may be situations where the results of the reform fall short of expectations, which in turn affects the company's profit expectations.