2023 revenue was in line with our expectations, and net profit was slightly lower than our expectations
Tongrentang Technology announced its 2023 results: revenue rose 13.04% year on year to 6.78 billion yuan, in line with our expectations; net profit to mother was 590 million yuan (corresponding to earnings of 0.46 yuan per share), up 1.25% year on year, slightly lower than our expectations, mainly due to the impact of the core subsidiary Tong Ren Tang Sinopharm's core product inventory removal.
Development trends
In 2023, the company's large product strategy continued to advance. In 2023, the company's sales of the Shengmai Drink Oral Liquid series increased 70.63% year on year, sales of the cold clean-up granule series increased 27.42% year on year, sales of the beef yolk detox series increased 8.58% year on year, sales of the Liuwei Dihuang pill series increased 8.04% year on year, and sales of the Ejiao series increased 6.98% year on year. The company has formulated marketing strategies and promotion plans for each category. We believe that the company's core products are expected to further increase channel layout and increase market share.
The subsidiary Tongrentang Sinopharm was affected by product channel adjustments. In 2023, the revenue of the subsidiary Tongrentang Sinopharm decreased 11.9% year on year to HK$1.52 billion; net profit to mother was HK$540 million, down 16.3% year on year, mainly due to channel adjustments for Ganoderma lucidum spore powder. In addition, in 2023, the subsidiary Tong Ren Tang Merhai had revenue of RMB 90.68 million, an increase of 62.66% over the previous year, and net profit of RMB 823 million. The total revenue of Tong Ren Tang No. 2 Hospital of Traditional Chinese Medicine and South Third Ring Road Pharmacy was 255 million yuan, up 16.75% year on year, and net profit was 12.78 million yuan, up 14.51% year on year.
The company stepped up product research and development efforts. In 2023, the company continued to recommend various types of clinical research work, such as waist strengthening and kidney health pills, Nishihuang pills, Jiaowei Xiaoyao pills, and Shengmai oral liquid. At the same time, the company is conducting research on new dosage forms and functional treatments for already marketed products such as pediatric rhinitis tablets and lactinuclear solution. We believe that the above secondary development projects are expected to strengthen the competitiveness of the company's existing products. In addition, the company continues to promote research and development of famous recipes such as astragalus granules, peony licorice soup, and fugui shugan soup.
Profit forecasting and valuation
Considering the adjustment of the subsidiary's core product channel, we lowered the 2024 EPS forecast by 11.7% to RMB 0.51, an increase of 9.8% year over year, and introduced the 2025 EPS forecast of 0.56 yuan, an increase of 9.8% over the previous year. We maintained the company's outperforming industry rating and simultaneously lowered the target price by 11.7% to HK$7.02, corresponding to a price-earnings ratio of 12.3 times/10.8 times in 2024/2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.7 times/7.6 times, and there is room for an increase of 41.5% from the target price.
risks
The cost of raw materials has risen, and the market share of the company's core products has declined.