Incidents:

The company announced its 2023 results. Operating revenue was RMB 4,517 million, up 14.3% year on year, and net profit to mother was 970 million yuan, up 34.1% year on year.

Comments and opinions:

Rapid growth in performance, focus on shareholder returns

In 2023, revenue was RMB 4,517 million, up 14.3% year on year, and net profit to mother was RMB 970 million, up 34.1% year on year. Earnings per share were RMB 128 points; sales of traditional Chinese medicine formula granules reached a new high due to continued growth in sales of respiratory medicines and a number of exclusive oral products. Gross margin increased 0.7 percentage points to 75.1% from last year. Net profit margin increased from 18.3% last year to 21.5%, and ROE increased from 11.32% in '22 to 13.78% in '23. The total profit-related dividends for the fiscal year 2023 increased to RMB 54 per share, with a full-year dividend payout ratio of 42.2%. The current dividend ratio is 6.1%.

Traditional Chinese medicine formula granules are expected to continue to grow rapidly:

Chinese medicine formula granules accounted for 26.6% of the company's total sales in 2023. In terms of sales, the company ranks among the top five listed Chinese medicine formula granules in the country. It won all bids in the collection of traditional Chinese medicine formula granules carried out by the 15-provincial alliance in '23, and the price was maintained well, which is conducive to the rapid expansion of the product. The company's production capacity can reach 5 billion yuan.

The share of oral drugs has increased, and the operation is more steady:

The company has been focusing on cultivating oral pharmaceuticals in recent years, accounting for 54.7% of total revenue in 2019, up 60.5% from now. Exclusive products such as synovitis granules and Astragalus Huangtongbi softgels have continued to grow during the year. The proportion of injections was 39.5%, and the company's operating stability was further improved. Sales of drugs included in the national essential drugs catalogue increased by a total of 32.8% to 1,744 billion yuan, accounting for 38.6% of the Group's overall sales. The share of oral medicines and essential drugs increased, and the company's future operations will be more steady.

Innovative traditional Chinese medicine is progressing smoothly:

The company has achieved remarkable results in innovative research in traditional Chinese medicine. A number of research and clinical projects are progressing smoothly. The company is fully responsible for technical research and approved for marketing. Three innovative drugs, including Seluotong capsules, Q-B-Q-F concentrate pills, and JC capsules, are in phase III clinical trials. Seluotong capsules are a component traditional Chinese medicine developed with modern innovative technology. It is an innovative traditional Chinese medicine for vascular dementia. It is expected that phase III clinical trials will be completed this year. Vascular dementia is the second most common cause of dementia after Alzheimer's disease.

There is currently no effective treatment. The market space is vast, and it will be a major product.

Our point of view:

The company's performance is growing rapidly, the product pipeline is rich, and the proportion of oral medicines has increased to 60.5% at present. Traditional Chinese medicine formulations are expected to expand rapidly, and innovative drugs are progressing smoothly. Currently, static PE is 8 times higher, and the dividend rate has reached 6.1%. The value is undervalued, and active attention is recommended.