The gross margin of the main business was under pressure, and large credit impairment confirmed that the company's net profit to mother decreased by 3% year-on-year in 2023.
The company achieved operating income of 1,064 billion yuan in 2023, +6.27% over the same period. The main reason was that the company strengthened market development and maintained growth in product sales; net profit to mother was 396 million yuan, -3.32% year over year. First, because the downstream farming market was sluggish and the gross margin of pig vaccines was under pressure. Second, due to tight funding in the farming chain, the company confirmed a credit impairment of about 80 million yuan. On a quarterly basis, 2023Q4 achieved operating income of 237 million yuan, -24.76% year-on-year, and -19.93% month-on-month; realized net profit of 39 million yuan, -69.05% year-on-year, and +66.95% month-on-month, mainly due to a decline in gross margin and confirmed credit impairment of about 56 million yuan.
The gross margin of pig vaccines is under pressure, and the amount of pet vaccines has increased sharply. By business, the company's pig vaccine achieved operating revenue of 974 million yuan in 2023, with a gross margin of 73.98%, year-on-year -1.33pct, mainly affected by the downturn in downstream farming; businesses other than pig vaccines achieved operating income of 90 million yuan, +41.24% year on year, gross margin of 51.70%, +3.00 pct year on year. Of these, pet vaccines achieved operating revenue of 12 million yuan, +74.32% year on year, gross margin of 31.70% year on year, +33.28 pct year on year. New products such as the triple vaccine have been launched one after another, and revenue and gross margin are expected to continue to rise rapidly.
Research and development results continue to be realized, and the trifecta vaccine for cats is expected to be marketed this year. In 2023, the company continued to increase investment in research and development. During this period, it obtained 7 clinical trial approvals, including swine fever and swine pseudorabies vaccines.
In the field of pig seedlings, 3 products, including the porcine coronavirus inactivated vaccine, have completed a new veterinary drug review; in the field of pet vaccines, the company's triple inactivated vaccine for cats has passed an emergency review and is expected to be marketed for sale this year. The general rabies inactivated vaccine for dogs and cats has applied for clinical trials. We believe that the company can rely on a solid R&D foundation and stable R&D investment to continue to achieve results, and the product matrix and business scale are expected to expand steadily.
I am optimistic that the aquaculture boom will pick up, and demand for animal protection is expected to benefit from recovery. From an industry perspective, pig production capacity continues to decline, pig prices are not weak during the off-season after the Spring Festival. The cycle is expected to reverse within the year, and demand for high-quality pig vaccines is expected to pick up as downstream farming profits recover. From the company's perspective, the Ke Qian biological pig vaccine accounts for more than 95% of revenue. Many core products, represented by the pseudo-rabies vaccine, have obvious advantages. The market share is leading and rising steadily. Subsequent performance is expected to benefit from a recovery in pig prices and achieve highly elastic growth.
Risk warning: An uncontrollable outbreak occurred during breeding, and vaccine batch issuance progress fell short of expectations.
Investment advice: Maintain a “buy” rating. As a leading domestic non-compulsory exemption leader, the company is optimistic about the growth in performance driven by the recovery in pig prices and the growth potential brought about by the demand for non-plague vaccine research and development and large-scale farming. Considering that the farming boom may still be low in the first half of this year, and the farming boom is expected to reverse upward from the second half of this year to next year, we adjusted the company's net profit forecast for 2024-2025 to 50/ 670 million yuan (the previous forecast value was 67/540 million yuan). The net profit for 2026 is 640 million yuan, and the final EPS for 2024-2026 is 1.08/1.43/1.36, corresponding to the current stock price PE is 17.3/13.1/13.7X.