Incident: 1) Tong Ren Tang released its 2023 annual report. In 2023, the company achieved operating income of 17.861 billion yuan, up 16.19% year on year; realized net profit of 1,669 billion yuan, up 16.92% year on year; realized net profit deducted from non-return mother of 1,657 billion yuan, up 18.32% year on year; net operating cash flow of 1,869 billion yuan, down 39.58% year on year; and the company's EPS in 2023 was 1.217 yuan/share, up 16.91% year on year. 2) Tong Ren Tang announced that the company plans to distribute a total cash dividend of 686 million yuan, accounting for 41.09% of net profit attributable to mother.
Comment:
The net profit growth rate in 2023 was relatively fast, and the pharmaceutical commercial revenue growth rate was impressive. According to the company's announcement, in the fourth quarter of 2023, the company achieved revenue of 4.140 billion yuan (-7.44% YoY) and realized net profit to mother of 278 million yuan (-34.47% YoY). The high performance base affected short-term pressure. The increase in net profit in 2023 was mainly due to increased demand in the traditional Chinese medicine market, the company actively developed the market, deepened marketing reforms, and increased product sales. According to the annual report, from the revenue side, the company's pharmaceutical industry sector achieved revenue of 11.079 billion yuan (+12.60%) in 2023, and the pharmaceutical business sector achieved revenue of 10.246 billion yuan (+20.82%). The company's overall net interest rate in 2023 increased slightly year-on-year. On the cost side, in 2023, the company's sales expense ratio, management expense ratio, and financial expense ratio decreased year on year, R&D expense ratio increased year on year, and overall cost control was relatively steady.
Continued investment in secondary research and development of marketed varieties, subsidiaries Tongrentang Technology and Sinopharm are under pressure for a short period of time. According to the company's annual report, in 2023, the company continued to step up secondary research and development efforts to improve basic data on major varieties. Currently, there are 5 major varieties of 17 drugs under development, including key varieties such as Tongren Beef Yellow and Qingxin Pills; in addition, the company focused on its main business, carried out research on classic famous recipes and clear brain tablets and exploratory research on potential varieties to explore variety value; among the main participating holding companies, Tongrentang Technology achieved revenue of 6.773 billion yuan in 2023 (+13.013.04% compared to the same period last year) ), net profit of 992 million yuan (-0.93% YoY); Tongrentang Sinopharm achieved revenue of 1,377 million yuan (YoY -7.94%) and net profit of 532 million yuan (YoY -10.78%); Tongrentang Commercial achieved revenue of 10.345 billion yuan (YoY +20.94%) and net profit of 550 million yuan (YoY +51.97%) in 2023.
In 2024, we will promote the production of large varieties, create efficiency and improve quality. According to the 2024 business plan in the annual report, the company will focus on gathering on a large scale, continue to promote the addition of large varieties, and promote the implementation of the new standards of the “National Chinese Medicine Tablet Preparation Code” and “Beijing Chinese Medicine Tablet Preparation Code”; in terms of efficiency and quality improvement, the company will refine dealer entry and terminal store selection principles, carry out standardized research on traditional preparation techniques and the establishment of internal control standards for proprietary Chinese medicines, and carry out intelligent transformation pilot work in the fields of energy control and small pill dosage; in terms of industrial chain construction, the company will gather and implement intelligent transformation pilot work in the fields of energy control and small pill dosage; Focus on upstream raw material security and strengthen planting and breeding The subsidiary builds a planting and breeding base, expands its scale, and uses informatization means to improve the economic benefits of planting and breeding.
Profit forecast and investment rating: We expect Tong Ren Tang's 2024-2026 revenue to be 198.41/221.04/24.652 billion yuan, respectively, and net profit to mother of 19.41/2287/2,564 billion yuan, respectively. The corresponding PE is 29/25/22X, respectively, maintaining the “gain” rating.
Risk factors: industry policy risk, raw material price increase risk, market competition risk, industry collection risk.