Incident: Tianshili released its 2023 annual report. During the reporting period, it achieved revenue of 8.674 billion yuan (+0.42% YoY), net profit of 1,071 million yuan (YoY +505.34%), net profit of 1,181 million yuan (YoY +60.11%); 2024Q1 achieved operating income of 2,049 million yuan (-1.73% YoY) and net profit of 295 million yuan (YoY +5.22%), which is in line with expectations.
Steady growth in performance. By industry, the pharmaceutical business achieved 1,215 billion yuan (-14.21% YoY); the pharmaceutical industry achieved 7.421 billion yuan (+3.22% YoY), and its central cerebrovascular, anti-tumor/cold fever/liver disease treatment/others achieved revenue of 52.54/1.90/5.08/6.57/812 million yuan respectively, +3.45%/-39.67%/+18.42%/+12.96%/+3.38%; gross margin was 74.93%/65.34%/61.81%/61.81%/ 82.18%/61.47%, +2.18pct/ +0.17pct/+10.17pct/-0.65pct/-3.4pct. Revenue from anti-tumor products decreased by 39.67% compared to the same period last year, mainly due to Diqing's implementation of centralized volume procurement prices for inter-provincial alliances in July 2022. Collection prices have been implemented for more than 1 year, and the impact of price cuts on the company's performance has weakened. 2024Q1 anti-tumor products achieved revenue of 55 million yuan (+31.74% year over year), mainly due to the increase in sales volume of Tiqing.
The R&D pipeline is progressing efficiently, and many products have entered clinical phase III. In 2023, the company invested 1,315 billion yuan (+29.49% year over year). Through the “four-in-one” R&D model, the company has a R&D pipeline covering 98 products under development, including 41 Class 1 innovative drugs, 36 in clinical trials, and 26 in clinical phase II and phase III: 2 classic traditional Chinese medicines, loquat lung cleansing drink and Wen Jingtang, submitted production applications; 9 innovative traditional Chinese medicines are in phase III clinical research.
Give it an “gain” rating. The estimated net profit for 2024-2026 is 11.74/12.92/1,430 billion yuan, up 9.6%/10.0%/10.7% year-on-year, EPS is 0.79/0.86/0.96 yuan, and the corresponding PE is 19.5/17.8/16.1x, respectively. Considering that the company has strong R&D strength, brand power and mature marketing system, it was given an “increase in weight” rating.
Risk warning: R&D innovation risk, policy adjustment risk, cost fluctuation risk