occurrences

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%; realized net profit of 589 million yuan, +16.74% of the previous year; and realized net profit of 559 million yuan, +24.19% year-on-year.

Incident reviews

Overall gross margin has been rising steadily, and cost structure optimization has contributed to outstanding performance. Profit growth in the third quarter was rapid, and profitability continued to improve. Looking at a single quarter, 2023Q3 achieved revenue of 843 million yuan, -13.45% year-on-year, and revenue side growth slowed, mainly due to the impact of the company's marketing structure adjustments and superimposed chemical product collection; realized net profit of 142 million yuan, +26.48% year-on-year; achieved net profit of 145 million yuan, +55.78% over the same period last year, and the profit side grew rapidly, mainly because investment in brand promotion was relatively concentrated in the third quarter last year, and the pace of investment this year was relatively balanced, leading to quarterly fluctuations in profit.

The company's cost control strategy is showing results. The company's gross sales margin for the first three quarters was 67.70%, +1.15 percentage points year-on-year. The cost rate for the period was 42.22%, -0.50 percentage points year-on-year, of which the sales expense ratio was 39.02%, -0.08 percentage points year-on-year, mainly affected by the pace of investment in brand promotion and other expenses; the management expense rate was 4.58%, +0.19 percentage points year-on-year; and the financial expense ratio was -1.38%, -0.61 percentage points year-on-year. The company's cost structure optimization strategy has shown results, so in the context of short-term pressure on revenue in the 23Q3 single quarter, it has been able to drive high growth on the profit side.

The three business segments are working together and the brand is strong

The three major categories went hand in hand, driving the major health business sector to continue to grow rapidly. By sector, the company's non-prescription drug sector achieved revenue of 2,271 billion yuan in the first three quarters, +13.08%; the prescription drug sector achieved revenue of 463 million yuan in the first three quarters, -16.93%; and the health sector achieved revenue of 385 million yuan in the first three quarters, +46.59% year-on-year.

The company has obvious brand advantages and mature sales channels. In terms of brand building, focusing on the two brands “Jiangzhong” and “Lihuao”, the company continues to create 1 billion grade gold single product for stomach health and digestion tablets, 500 million grade lactic acid bacteria tablets, and herbal coral tablets that have penetrated the mentality of the three generations of Chinese people, China, and young people, and has continuously strengthened the moat in the gastrointestinal field and built a brand position in categories such as throat and supplements. The brand value of “Jiangzhong” in 2023 was 37.629 billion yuan, ranking sixth in the pharmaceutical industry. In terms of channel development, the company has an over-the-counter drug sales team of 1,000 people. It now covers 200,000 terminal pharmacies, cooperates closely with 3,000 businesses, and penetrates more than 500,000 pharmacies and 200,000 primary care terminals.

Investment advice

We maintain our profit forecast unchanged. The company's revenue for 2023-2025 is estimated to be 45.27/54.27/6.519 billion yuan, respectively, an increase of 18.8%/19.9%/20.1%, respectively, and net profit of 696/8.19/981 million yuan, respectively, an increase of 16.8%/17.7%/19.7%, respectively. The corresponding valuation is 19X/17X/14X. We are optimistic about the company's future long-term development and maintain a “buy” rating.

Risk warning

Increased market competition risk, industry policy change risk, raw material price and supply risk.