Incidents:
The company released its annual report for 2023, and achieved revenue of 17.861 billion yuan (yoy +16.19%), net profit attributable to mother of 1,669 billion yuan (yoy +16.92%), and net profit not attributable to mother of 1,657 billion yuan (yoy +18.32%). In the Q4 quarter, the company achieved revenue of 4.140 billion yuan (yoy -7.44%), net profit attributable to mother of 278 million yuan (yoy -34.47%), after deducting non-return net profit of 279 million yuan (yoy -31.83%).
The main business grew well, and the fourth quarter was under short-term pressure
The company's pharmaceutical industry business achieved revenue of 11.079 billion yuan (yoy +12.60%) and gross profit margin of 46.97% (yoy-1.98pct). Its central cerebrovascular and supplement products achieved revenue of 4.388 billion yuan (yoy +8.02%) and 1,730 billion yuan (yoy +10.41%) respectively. The pharmaceutical commercial business achieved revenue of 10.246 billion yuan (yoy +20.82%) and a gross profit margin of 31.11% (yoy+0.16pct). A total of 1001 retail stores were set up, 59 new stores were added during the year, and designated medical insurance stores accounted for 78.22%. The company's Q4 performance was under pressure in the short term, mainly affected by the high base for the same period last year and the removal of inventory by the subsidiary Tongrentang Sinopharm.
The performance of subsidiaries is divided, and technological and commercial performance is steady
Among the major holding companies, Tongrentang Technology achieved revenue of 6.773 billion yuan (yoy +13.04%) and net profit of 992 million yuan (yoy -0.93%) in 2023; Tongrentang Sinopharm achieved revenue of 1,377 million yuan (yoy -7.94%) and net profit of 532 million yuan (yoy -10.78%) in 2023; Tongrentang Commercial achieved revenue of 10.345 billion yuan (yoy +20.94%) and net profit of 550 million yuan (yoy +51.97%) in 2023.
Continuous optimization of cost rates to promote high-quality development
The company is steadily advancing the three major development strategies of “high quality development strategy, quality strategy, and large variety strategy”.
Under the unfavorable environment of rising Chinese herbal medicine costs, the company's gross margin fell to 47.29% (yoy-1.51 pct) in 2023, achieving a year-on-year decrease of 0.74 pct, 0.20 pct, and 0.59 pct in sales, management, and financial expenses, and a 0.16 pct increase in R&D expenses, driving the company's net interest rate to 14.46% (yoy+0.15pct). The top five products achieved revenue of 4.953 billion yuan (yoy +9.97%), accounting for 44.70% of the pharmaceutical industry's revenue.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 207.70/237.53/27.107 billion yuan respectively, with year-on-year growth rates of 16.29%/14.36%/14.12%; 2024-2026 net profit to mother will be 19.02/22.56/2,640 billion yuan, respectively, with year-on-year growth rates of 13.99%/18.59%/17.03%; EPS will be 1.39/1.64/1.93 yuan/share, respectively, with a 3-year CAGR of 14.9%, corresponding to PE It is 30/25/21 times. Given that the company is a leader in non-prescription proprietary Chinese medicines, referring to the relative valuation of comparable companies, 40 times PE was given in 2024, with a target price of 55.60 yuan, maintaining a “buy” rating.
Risk warning: industry policy risk, raw material price increase risk, market competition intensifying risk, etc.