1Q24 revenue and net profit to mother increased 2% and 10% year-on-year
The company announced 1Q24 revenue, return to mother, and non-net profit of 570 million yuan, an increase of 2.4%, 10%, and 10% year-on-year, achieving steady growth under the high base effect in the same period last year. We are optimistic that Tong Ren Tang's internal changes will bring about performance sustainability and valuation reshaping. We expect the company's net profit to be 19.6/23.2/2.74 billion yuan (+17%/18%/18%) in 2024, giving 2024 PE 40x (comparable company average value 32x, considering the effectiveness of the national reform and a certain premium), and a target price of 57.17 yuan to maintain the “buy” rating.
Joint Stock Company: The performance of core products is stable. Starting in the second quarter, we estimate that the company's 1Q24 revenue will be stable, and the revenue growth rate is expected to be 10-15% in 2024-26:1) We expect Anniu 1Q24's high revenue base to be stable, and channel inventory is expected to remain low. The boutique series has been launched, which is expected to drive a quarterly increase in ASP, and is expected to maintain 15 to 20% continuous growth in the long term; 2) We are optimistic that second-tier varieties will increase the performance of people with hypertension, arthritis, and long-term sequelae of stroke in the context of aging; 3) The boutique series has launched 11 It is planned to launch 12 more in the second half of the year, focusing on domestic pharmacies in the first half of the year and selling goods to high-quality dealers in the second half of the year, which is expected to drive a gradual improvement in gross margin and net profit margin starting in the second quarter.
Brother companies are performing steadily and are expected to accelerate in the next quarter
1) The technology company's 1Q24 revenue was 2.22 billion yuan (+8% yoy), profit to mother was 240 million yuan (+13% yoy), gross margin decreased 5.8 pct year over year, mainly due to rising herbal medicine costs, and rapid profit side growth. We expect 10-20% revenue growth in 2024-26; 2) We expect a 10-20% revenue growth rate in 2024-26; 2) We estimate that Sinopharm's 1Q24 performance will grow steadily. Along with Ganoderma lucidum spore powder inventory clean-up, we expect revenue growth of 10-20% in 2024-26; 3) The 1Q24 performance is stable under a high base, and the annual growth rate is expected to be low and high (thanks to strong demand for traditional Chinese medicine treatment and cost reduction and efficiency and return of profits after the establishment of the six major control centers).
Good balance sheet, continuous procurement of precious medicinal herbs
1) 1Q24 gross margin was -3.6 pct to 42.9% year on month, and is expected to be affected mainly by the pace of raw material procurement; 1Q24 net interest rate was +0.25 pct year over year, mainly due to increased rate control and investment income/other income; 2) 1Q24 accounts receivable rose to 1.7 billion yuan, mainly due to the temporary impact of the customer credit limit management rhythm, and contract debt fell slightly to 570 million yuan (670 million yuan at the end of 2023); 3) Net cash flow from 1Q24 operations was negative, and cash payments for goods purchased and services increased by 9.7 million yuan Yuan, inventory increased to 9.6 billion yuan (9.34 billion yuan at the end of 2023), mainly due to continued increase in procurement of precious medicinal herbs; 4) 1Q24 sales/management/R&D/finance rates were -2.2/-0.8/ -0.1/+0.2pct year-on-year.
Risk warning: risk of product sales falling short of expectations; risk that the progress and results of state-owned enterprise reforms fall short of expectations; risk of fluctuations in raw material prices.