1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 5.267 billion yuan, up 2.42% year on year; net profit to mother of 576 million yuan, up 10.04% year on year; deducted non-net profit of 571 million yuan, up 9.98% year on year, performance in line with expectations.
Development trends
Net profit achieved impressive growth, and gross margin declined. 1Q24 achieved operating income of 5.267 billion yuan (YoY +2.42%), mainly due to the volume of demand in the 1Q23 pharmaceutical market, a sharp increase in product sales. As a result, 1Q24's revenue had a large year-on-year base, and the year-on-year growth rate slowed; net profit to mother of 576 million yuan (YoY +10.04%), where the year-on-year growth rate exceeded the revenue side mainly due to the month-on-month decline in the three expense rates. In 1Q24, the company achieved a comprehensive gross margin of 42.9%, a year-on-year and month-on-month decline.
The three expense ratios declined year over year, and operating cash flow increased year over year. On the cost side, the 1Q24 company's sales expense ratio was 16.0%, down 2.21ppt; the management expense ratio was 6.8%, down 0.85ppt year on year, further improving operating and management efficiency; and the R&D expense ratio was 0.8%, down 0.09ppt year on year. According to the announcement, 1Q24's operating cash flow was -252 million yuan (YoY -121.98%), mainly due to increased procurement expenses for raw materials, especially precious materials, and the commercial division's procurement expenses for goods also increased significantly. In 1Q24, the company's cash accounts receivable increased by 967 million yuan over the same period last year; up to 1Q24, the company's accounts receivable were 1,696 million yuan, an increase of 60.64% from the beginning of the year, mainly due to accounts receivable generated under customer credit limit management not reaching the payback period.
Continuous layout of R&D, with a steady long-term growth trend. Focusing on the company's main business, increase the establishment of scientific research projects, carry out research and development work on classic famous recipes, clear the brain, and clear the brain, and clean up the basic data for large varieties; carry out exploratory research on potential varieties to explore the value of varieties; complete research on internal control standards such as Sichuan beef knee to address production quality issues; and lay out and resolve endangered rare herbal medicine resources in advance. By the end of 2023, the company had more than 800 drug regulations, and produced more than 400 types of products all year round, covering internal medicine, surgery, gynecology, pediatrics, etc., with a rich product reserve. The scientific research work mainly focused on research and development of new products, variety cultivation, standard system construction, and early research on indications.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 31.9 times/28.2 times. Maintaining an outperforming industry rating and keeping the target price of 60.85 yuan unchanged, corresponding to 43.6 times the 2024 price-earnings ratio and 38.4 times the 2025 price-earnings ratio, with 36.4% upside compared to the current stock price.
risks
Prices of raw materials have risen, and product marketing results have fallen short of expectations.