Core views
On the evening of April 24, the company released its report for the first quarter of 2024, achieving revenue of 2,049 billion yuan, a year-on-year decline of -1.73%; the slowdown in revenue side growth was mainly due to the high base of the cold breathing category in the same period last year and short-term pressure on the pharmaceutical business sector; net profit to mother was 295 million yuan, up 11.58% year on year; net profit after deduction was 294 million yuan, up 5.22% year on year. The profit side growth was mainly due to the continuous increase in the company's share of revenue from the highly profitable industrial sector. Overall, the company's Q1 performance is in line with expectations, and the main business is expected to maintain a steady growth trend in 24, driven by the Chinese medicine sector.
occurrences
Company releases report for the first quarter of 2024
On the evening of April 24, the company released its report for the first quarter of 2024, achieving operating income of 2,049 billion yuan, a year-on-year decrease of -1.73%; net profit to mother of 295 million yuan, up 11.58% year on year; net profit after deduction of 294 million yuan, up 5.22% year on year; and achieved earnings of 0.20 yuan per share, which is in line with our previous expectations.
The company merged with Tasly Healthcare Deutschland GmbH and Tasly Healthcare Deutschland GmbH under the same control in May 2023 and October 2023, respectively, so the data for the first quarter was adjusted.
Brief review
Main products are growing steadily, and performance is in line with expectations
In Q1 2024, the company achieved revenue of 2,049 billion yuan, down -1.73% year on year. The short-term pressure on the revenue side was mainly due to the high base of the cold breathing category in the same period last year and the short-term pressure on the revenue of the pharmaceutical business sector; net profit to the mother was 295 million yuan, up 11.58% year on year, and net profit after deducting 294 million yuan, up 5.22% year on year. The profit side growth was mainly due to the continuous increase in the company's share of revenue from the profitable industrial sector. Overall, the company's short-term growth in Q1 was under pressure due to environmental factors and disturbances in the industry's external environment and base figures, and the performance was in line with our previous expectations.
The industrial sector remains stable, and the commercial sector continues to be under pressure
Looking at the 2024 Q1 segment: 1) Pharmaceutical industry sector: achieved revenue of 1,809 billion yuan, a year-on-year increase of 4.83%, gross margin of 71.96%, a year-on-year decrease of 0.89 percentage points, and profitability remained stable. Among them, the three core business sectors of traditional Chinese medicine, chemical pharmaceuticals, and biopharmaceuticals achieved revenue of 1,441 billion yuan (+3.83%), 290 million yuan (+11.67%), and 57 million yuan (-0.16%). The growth rate of the Chinese medicine sector slowed slightly under the influence of the high base of the cold breathing category. Chemical pharmaceuticals Driven by the recovery in Diqing's sales volume, it achieved steady growth, and the biopharmaceutical sector remained stable. 2) Pharmaceutical business sector: Achieved revenue of 226 million, a year-on-year decline of 33.74%. The revenue side pressure was mainly due to the lower sales volume of pharmacy chains than the same period last year. The gross margin was 29.25%, an increase of 0.93 percentage points over the previous year, and profitability remained stable. The company's pharmaceutical business is mainly a retail chain business. Currently, it has chain pharmacies in regions such as Liaoning Province, Tianjin City, Shandong Province, etc. The company has signed a “Stock Acquisition Agreement Termination Agreement” with Shu Yu Minmin. It is expected that the termination of the share transfer will not affect the normal production and operation of the company.
The R&D pipeline progressed efficiently and continued to consolidate the leading position of modern traditional Chinese medicine. In 2023, the company continued to increase its R&D and innovation efforts, and the R&D pipeline was promoted efficiently. Currently, it has a R&D pipeline covering 98 products under development, including 41 Class 1 innovative drugs, 36 of which are in clinical trials. Among the 26 innovative drugs that are already in clinical phase II and phase III research, including Anshen Dipping Pills, Qingshu Granules, Spinal Pain Relief Tablets, Antewei Granules, Susu Children's Cough Relief Granules, Citrus Infantile Cough Tablets, Tangerine Lactation Capsules, and T89 Therapeutic Granules Chronic stable angina adaptations Nine innovative traditional Chinese medicines, including symptoms and T89 to prevent acute plateau syndrome (AMS), are in phase III clinical research; 2 other classic traditional Chinese medicines, loquat lung cleansing drink and warm jing soup, have submitted production applications. In terms of international research and development, two international clinical trials of T89 for treatment of chronic stable angina and prevention of acute plateau syndrome (AMS) are in progress. Among them, T89-AMS has completed the enrollment of patients in phase III clinical trials. We believe that as the company adheres to integrity innovation and self-innovation, steadily increases the coverage of core varieties, and combines production and investment to cultivate new growth momentum, it is expected that it will continue to stabilize the company's leading position in modern traditional Chinese medicine, and we are optimistic that honest innovation will lead the company's high-quality development.
Looking ahead to the whole year: The core sector is expected to drive the main business to achieve steady growth. In the Chinese medicine sector, as the company accelerates the promotion of compound salvia and actively carries out scenario-based marketing of sugar net indications, it will help further open up Dandi market space. I am optimistic that the 24-year sugar net indication promotion will continue to bring incremental contributions to the core exclusive variety of compound salvia drops. The overall Chinese medicine sector is expected to continue the steady growth trend driven by the three basic pharmaceutical products; in the chemical sector, the market will gradually be under pressure due to the price adjustment of Tiqing's contract renewal, but the overall impact will continue. Weakening and superposition of new product layouts continue Improvement is expected to gradually recover from a low base in 24 years; in the biopharmaceutical sector, although product sales are under pressure in the short term due to the impact of the competitive environment outside the market, as Puyuk moves from the negotiation catalogue of the National Health Insurance Catalogue to the regular Class B catalogue, market space is being expanded by improving market access. At the same time, phase III verification tests are progressing rapidly, and Puyuk is still expected to recover sales in the next few years, driven by new indications. Overall, the company's main business is expected to maintain a steady growth trend driven by the Chinese medicine sector in '24.
Profitability is rising steadily, and the quality of operations remains healthy
In Q1 2024, the company's comprehensive gross margin was 67.17%, up 1.66 percentage points year on year, mainly due to an increase in the revenue share of the industrial sector with strong profitability; the sales expense ratio was 33.83%, up 1.58pp year on year, which is estimated mainly due to the company's low cost investment in the same period last year; the management expense ratio was 3.55%, a decrease of 0.45pp year on year, ideal cost control effect; the R&D expense ratio was 9.73%, an increase of 1.79 pp over the previous year, mainly due to the company's continuous increase in R&D investment; the net cash flow from operating activities declined year on year 324.05%, mainly due to the company's bank acceptance bill collection discount amount lower than the same period last year. Other financial indicators are generally normal.
Profit forecasting and investment ratings
Excluding the impact of non-recurring profit and loss events such as fluctuations in the company's asset prices, the company's main business operations remained steady. Looking forward to the future, the company will continue to innovate R&D pipelines and actively expand new indications around the three major disease fields of cardiovascular, digestive metabolism, and tumors. As the company accelerates the promotion of products such as Dandisan Network Indications, temozolomide for chemical injections, and benzafite sustained-release tablets, and the progress of the new indications of the biopharmaceutical Puyuk, it is expected that the company's main business performance will continue to grow steadily in the future. We expect the company to achieve operating income of 9.104 billion yuan, 9.651 billion yuan and 10.332 billion yuan respectively from 2024 to 2026, and net profit after deduction of 1,169 billion yuan, 1,285 billion yuan, and 1,419 billion yuan respectively, with year-on-year increases of 9.2%, 9.9%, and 10.4%, respectively, maintaining the “buy” rating.
Risk analysis
1) Product promotion falls short of expectations: the company's sales investment increases. If product promotion falls short of expectations, it will affect sales revenue and affect the company's profit; 2) Product price reduction risk (product price reduction exceeds expectations due to interprovincial procurement alliances): Product price reduction due to collection and direct reduction in hospital market share, which in turn will directly affect the company's overall business situation and profit level; 3) Risk of price increase in raw materials and power costs: The cultivation cycle of traditional Chinese medicine is long, and fluctuations in the price of raw materials required by the company will cause costs to rise, which in turn will affect the company's overall profit; 4) The Chinese medicine policy environment is unstable: The relevant environment is not completely stable. If relevant policies are introduced in the future, it may cause the market to become chaotic and affect the company's business conditions.