Event: On October 28, the company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved operating income of 3.140 billion yuan (+9.24%), net profit of 589 million yuan (+16.74%), net profit of 589 million yuan (+16.74%), and net profit of 559 million yuan (+24.27%) after deducting non-return net profit. Among them, Q3 achieved operating income of 843 million yuan (-13.45%), net profit of 142 million yuan (+26.48%), and net profit deducted from the mother of 145 million yuan (+55.78%).

Q3 The three major sectors were basically the same as last year, and short-term adjustments did not change the long-term growth trend. In the first three quarters of 2023, the OTC/Prescription Drugs/Big Health sector achieved revenue of 22.71/4.63/385 billion yuan respectively, +13.08%/-16.93%/+46.59% of the same period last year. The 2023Q3 OTC/Prescription Drugs/Big Health segment achieved revenue of 625/1.19/101 million yuan, -0.07%/-0.44%/+0.19%, respectively. The 2023Q3 sales expense ratio, management expense ratio, and financial expense ratio were 37.98%/6.14%/-1.99%, respectively -7.38/ +1.29/ -1.04pct, year-on-year, respectively, and the net profit margin was 16.91% (+5.34pct). Mainly, the pace of investment in brand promotion last year was influenced by macro factors. It was relatively concentrated in Q3, while this year's investment pace was relatively balanced. We believe that this year is the base year for a new stage of development for the company. On August 14-15, China Resources held a mid-term review of the “14th Five-Year Plan” strategy with the theme of “liberating minds and reshaping breakthroughs”. The conference emphasized adhering to “implicit growth+extended mergers and acquisitions”, improving quality and efficiency to promote the company's high-quality development.

After China Resources joined, the company's performance was outstanding, maintaining a good cash flow and dividend ratio. The net operating cash flow for the first three quarters of 2023 was 571 million yuan (+25.51%), and the dividend rate was 64.07%.

The product positioning is clear and the style of play is diversified. A billion-grade single product for stomach health and digestion tablets teamed up with ordinary people's pharmacies to light up the “National Food Festival · Jiangzhong Night Season” fireworks station, connecting contemporary young people, and further expanding the household consumption scenario to the food consumption scene; since its launch in 2020, the multi-dimensional element film has a compound growth rate of 282% over the past three years, and won the honorary award of “China Pharmacy Clerk's Highest Recommended Brand” for three consecutive years at the China Summit Forum; as a representative of the company's high-end nutritional products category, Shen Lingcao won the honor award of the Jiangxi Provincial Government in August “A health food that enhances the body's immune function “And its preparation process” Jiangxi Patent Award”; Chu Yuan, as the representative of the company's rehabilitation nutrition, won the second prize of the Jiangxi Science and Technology Progress Award in August for the “High Standard Rehabilitation Nutrition Active Peptide Product Development Key Technology and Industrialization” project, supporting the high level of evidence-based evidence of the product.

Investment suggestions: Jiangzhong Pharmaceutical is a high-quality brand OTC enterprise, focusing on the gastrointestinal field, complementing and perfecting categories such as sore throat, cough, supplements, rehabilitation, nutrition, etc., and actively exploring online channels through the “endogenous+epitaxial” two-wheel drive. We are optimistic about the company's future revenue growth through category expansion and channel strengthening and collaborative optimization under China Resources's management system. The company is expected to achieve revenue of 44.3/51.02/5.765 billion yuan in 2023-2025, an increase of 16%/15%/13%, respectively; achieve net profit of 6.85/7.82/82/897 billion yuan, an increase of 15%/14%/15%, respectively; corresponding PE valuations are 18/16/14X, respectively, maintaining the “increased holdings” rating.

Risk warning: macroeconomic fluctuation risk; policy risk; increased industry competition; risk of cost fluctuation; product promotion falling short of expectations; R&D risk.