Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 6.733 billion yuan (yoy +12%), net profit after deducting non-return to mother 554 million yuan (yoy +15%), and net profit to mother of 592 million yuan (yoy +65%). Among them, 2023Q4 achieved revenue of 1,549 million yuan (yoy +2%) in a single quarter, net profit of 43 million yuan (yoy +8%) after deducting non-return to mother, and net profit of -32 million yuan (profit for the same period of 2022).
Comment:
Non-recurring profit and loss factors put pressure on 23Q4 earnings in the short term, and it is expected to break through again in 2024. ① In 2023, the company's operating performance was steady and steady, with a revenue growth rate of 12%, while net profit without return to mother grew 15%. On the one hand, the net profit growth rate higher than the net profit growth rate after deducting non-return to mother is due to the reduction in fair value change losses confirmed by Jia Ho Biotech (6998.HK) in 2023 compared to 2022 (the value was 198 million yuan in 2022 and 75 million yuan in 2023). On the other hand, the net profit from the transfer of 7.84% of the shares confirmed by the company was about 87 million yuan. ② 2023Q4's net profit to mother was -0.32 million yuan, while net profit after deduction was 0.43 million yuan. The net profit loss due to mother was mainly a fair value change loss. 2023Q4 confirmed that the fair value change loss was 52 million yuan (mainly obtained by Jiahe Biotech and Shanghai). We believe that the company uses the “three major projects” as a starting point, focusing on strategy and value, which will help the company to start again in 2024 and prepare for further breakthroughs.
Deepen the engineering layout of big brands with all kinds of traditional Chinese medicine products as the main body. ① In 2023, all categories of traditional Chinese medicine business generated revenue of $3,625 million (yoy +17%), of which OTC and prescription drugs generated revenue of 2,717 million yuan (yoy +13%), Chinese herbal medicines and tablets generated revenue of 851 million yuan (yoy +27%), and Chinese medicine health products and extracts generated revenue of 57 million yuan (yoy +33%). ② In terms of traditional Chinese medicine OTC and prescription drugs, the market share of “Kangenbei” brand enteritis products continued to rank first in the category in 2023, with sales revenue of nearly 1.3 billion yuan in 2023 (an increase of about 30% over the previous year). At the same time, the company is focusing on work related to the entry into the catalogue of new essential drugs such as Musk Xiang Tongxin Drops Pills and Chinese Defense Hexamethrin tablets. In addition, the company continues to promote the layout of innovative traditional Chinese medicine. In 2023, the company's innovative traditional Chinese medicine Huangmallow Flower Total Flavonoid Oral Patch was included in the medical insurance catalogue, and the registration application for the TCM Class 2.1 modified new drug for throat cleansing and throat lozenges was accepted. ③ In terms of Chinese herbal medicines and tablets, the company continues to be deeply involved in the Zhejiang market, with a growth rate of 27% in 2023. We believe that subsequent companies can use their channel advantages in Zhejiang Province to continue to cultivate, and the Chinese herbal medicine and tablet business is expected to continue to maintain a high growth rate.
Using specialty chemicals and specialty health consumer products as the two wings, we have created the company's second growth curve. ① In 2023, the specialty chemicals business generated revenue of 2,391 billion yuan (yoy +3%), of which chemical preparations achieved revenue of 1,767 billion yuan (yoy +3%), and APIs and veterinary drug formulations achieved revenue of 624 million yuan (yoy +3%). In terms of key varieties, sales revenue of “Jinkang Quick” acetylcysteine effervescent tablets increased 16% year over year, while sales revenue of “Jinkang Lingli” brand galantamine hydrobromide tablets (used to treat mild to moderate Alzheimer's symptoms) increased 55% year over year. ② In 2023, the specialty health consumer goods business achieved revenue of 580 million yuan (yoy +21%), of which “Kangenbei” brand health food achieved sales revenue of 570 million yuan, an increase of 23% over the previous year. We believe that with the development of the company's key varieties of specialty chemicals, combined with sales penetration and production transformation of specialty health consumption, it is expected that specialty chemicals and specialty health consumer products will create a second growth curve for the company in the future.
Profit forecast: We expect the company's revenue for 2024-2026 to be 7.508 billion yuan, 8.463 billion yuan, and 9.552 billion yuan respectively, with year-on-year growth rates of 12%, 13%, and net profit to mother of 675 million yuan, 782 million yuan, and 900 million yuan, up 14%, 16%, and 15% year-on-year, respectively. PE corresponding to 2024/4/19 stock prices will be 19 times, 17 times, and 14 times, respectively.
Risk factors: Competition in the terminal retail market intensified, the expansion of the tablet market fell short of expectations, product sales fell short of expectations, and losses due to changes in fair value exceeded expectations.