Performance review:
In 2023, the total operating revenue of A-share listed companies in the traditional Chinese medicine sub industry was 358.3 billion yuan,+6.1% year on year. The liberalization of the epidemic situation led to the growth of drug demand and steady growth of revenue; The total net profit attributable to the parent company was 36.3 billion yuan, up 26.8% year on year. The growth rate of the profit side was significantly higher than that of the income side, mainly due to the increase of the gross profit rate and the reduction of the sales expense rate and financial expense rate, which led to the increase of the net profit rate.
The first quarter of 2024: The total operating revenue of A-share listed companies in the traditional Chinese medicine sub industry was 97.2 billion yuan, - 1.0% YoY, mainly due to the high base due to the strong demand for cold medicine in the first quarter of the same period of 2023. The total net profit attributable to the parent company was 12.6 billion yuan, down 7.9% YoY. The growth rate of the profit side was significantly lower than that of the income side. Under the influence of factors such as the rise in the price of traditional Chinese medicine, the gross profit margin of the industry fell 2.46pp YoY.
From the perspective of the short and medium term, the adjustment of the list of basic drugs is imminent, and the reform of state-owned enterprises is progressing steadily. It is suggested to focus on the two main lines of the adjustment of the list of basic drugs and the promotion of the reform of state-owned enterprises:
Pay attention to the adjustment of the new version of the basic drug catalog and companies with potential new varieties included in the basic drug catalog. There are a large number of exclusive varieties of traditional Chinese medicine, which have a good competition pattern and a faster pace of volume. From the perspective of the driving effect of being included in the list of basic drugs on enterprises, traditional Chinese medicine enterprises are expected to benefit more than chemical medicine enterprises. Traditional Chinese medicine has unique advantages and significant efficacy in the treatment of some internal medicine (chronic diseases, immune regulation and other fields), surgery (trauma, bone injury and other fields), psychiatry, gynecology, dermatology, and pediatric diseases. Focusing on the dominant diseases of traditional Chinese medicine, more varieties are expected to be released in the future with the help of the adjustment of the basic medicine catalog, It is recommended to pay attention to companies with potential new varieties included in the base drug list: Yiling Pharmaceutical, Kangyuan Pharmaceutical, etc.
Pay attention to the reform of state-owned enterprises and high-quality state-owned enterprises that are expected to improve their operating efficiency with the help of state-owned asset platforms. In January 2023, the State owned Assets Supervision and Administration Commission (SASAC) held a meeting of the heads of central enterprises. In view of the shortcomings of some central enterprises, such as poor returns, low profit quality, weak market competitiveness, and insufficient innovation ability, the meeting determined the "one benefit and five rates" of the assessment system for central enterprises. With the deepening of the reform of state-owned enterprises, state-owned Chinese medicine enterprises are expected to adopt a more complete assessment system, a more flexible operational framework and more market-oriented management decisions. It is recommended to focus on high-quality state-owned enterprises that are expected to achieve operational efficiency improvement through state-owned asset platforms: Darentang, China Resources Sanjiu, Taiji Group, etc.
From the long-term perspective, consumption, innovation and resources are the direction. It is suggested to focus on the two main lines of traditional Chinese medicine brand OTC and traditional Chinese medicine innovative medicine:
Under the trend of centralized purchase and fee control, we are optimistic about the leading OTC brands of traditional Chinese medicine with consumption attributes. Under the general trend of intensive purchase in the hospital market and medical insurance fee control, OTC, a Chinese medicine brand that focuses on the market outside the hospital, may become a safe haven for intensive purchase. It is optimistic that OTC, a leading enterprise with good brand image and stable pattern, will occupy consumers' minds. Highlight: China Resources Sanjiu, Taiji Group, Lingrui Pharmaceutical, etc.
Returning to the attribute of drugs, it is recommended that high-quality traditional Chinese medicine innovative drug enterprises focus on the exact efficacy of products and have the ability to continuously produce new products. Efficacy is paramount, and clinical evidence-based medicine is the king's way. We are optimistic about excellent Chinese medicine enterprises whose products have been fully verified by evidence-based medicine and recognized by doctors. Recommended attention: Yiling Pharmaceutical, Kangyuan Pharmaceutical, etc.
Risk tip: the risk of innovative product R&D failure or slower progress than expected; Risk of drug regulatory policy adjustment; Centralized purchase risk; Risk of price fluctuation of traditional Chinese medicine.
