1H24 results are in line with our expectations
The company announced results for the first half of 2024: revenue of 4.05 billion yuan, up 2.63% year on year; net profit to mother of 0.429 billion yuan, corresponding to profit of 0.33 yuan per share, up 16.46% year on year. 1H24 results are in line with our expectations.
Development trends
The company further implements a large variety strategy. According to the company's announcement, in the first half of 2024, the sales revenue of the Liuwei Dihuang pill series increased by about 3% over the same period of the previous year, the sales revenue of the cold cleansing granule series increased by about 20% over the same period of the previous year, the sales revenue of the Nishihuang pill series increased by about 25% over the same period of the previous year, and the sales revenue of the Shengmai oral liquid series increased by about 20% over the same period of the previous year. At the same time, benefiting from the “large variety” development strategy, sales revenue of products such as the Zhibai Dihuang Pill series and the Acconitum Pill series all achieved double-digit growth compared to the same period last year. We believe that the company's core products are expected to further increase channel layout and increase market share.
The Chinese herbal medicine subsidiary's revenue continued to grow rapidly. According to the company's announcement, in the first half of 2024, Tongrentang Sinopharm and its subsidiaries achieved sales revenue of RMB 0.605 billion, a year-on-year decrease of 16.47%. Net profit attributable to the owners of Tongrentang Sinopharm was RMB 0.2 billion, a year-on-year decrease of 15.52%, mainly due to a decline in sales revenue in Hong Kong and Macao. In the first half of 2024, Tong Ren Tang Sinopharm actively expanded its retail market layout in Hong Kong. The six subsidiary companies engaged in the production of Chinese herbal medicine ingredients achieved sales revenue of RMB 0.264 billion, an increase of 50.20% year on year, and net profit of 8.579 million yuan, an increase of 16.09% year on year. We believe that the six Chinese herbal medicine raw material production subsidiaries are expected to achieve economic efficiency and sustainable development through product strategies of high quality and reasonable prices.
The company's net profit margin increased slightly year-on-year. According to the company's announcement, in the first half of 2024, gross margin fell 1.8 percentage points year on year to 38.0%, mainly due to rising raw material costs; sales expenses ratio was 16.4%, up 0.7 percentage points year on year; management expenses ratio was 5.9%, down 2.0 percentage points year on year; and net profit margin rose 1.3 percentage points year on year to 10.6% year on year.
Profit forecasting and valuation
We maintained our 2024 and 2025 net profit forecasts of 0.51 yuan and 0.56 yuan per share, with year-on-year increases of 9.8% and 9.8%. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.8 times/7.8 times. We maintain our outperforming industry rating and maintain our target price of HK$7.02, which corresponds to a price-earnings ratio of 12.5 times/11.1 times in 2024/2025, with 42.1% upside compared to the current stock price.
risks
Due to the pressure on raw material costs, the company's marketing reforms fell short of expectations.