Wuling Capsule has significantly increased the amount of centralized purchase of benefits, and the second line varieties have accelerated the contribution of the company. Wuling Capsule is the exclusive product of the company, which treats insomnia, amnesia, psychological disorders, etc., with a clear mechanism of action, and has the status of medical insurance class A+basic drug, and has entered several clinical guidelines; Based on the above advantages, Wuling Capsules' market share in urban and county level public hospitals continues to increase. In 2021, Wuling Capsules will become the first market share. In 2022, the market share of urban and county level public hospitals will reach 14% and 10% respectively.
We believe that Wuling Capsule has a development opportunity of accelerating growth under the centralized procurement (the price decreases by 21%, which is relatively mild). First, it promotes the sales increase by changing the large size packaging, from 36 pills/box to 54 pills/box. Many doctors in departments are accustomed to issuing the dosage according to the number of boxes, so the number of pills per box has increased by 50%. At present, six provinces (autonomous regions), Beijing, Jiangsu, Fujian Tianjin, Chongqing, etc. have implemented centralized purchase; Second, the sales staff will change the larger packaging based on the local medical insurance and hospital conditions on the basis of centralized purchase. For example, the purchase specification of Beijing Wuling Capsules is basically 270 capsules/box recently, further helping the sales increase. In terms of profit, at present, centralized purchase is expected to affect more than half of the sales volume, and the change of large specifications will have less impact on the gross profit margin. In addition, the company's marketing efficiency will improve under centralized purchase, and the sales expense rate will keep a downward trend from 2022Q3 quarter on quarter.
Second line varieties accelerated contribution increment: Lingze Tablets benefited from the basic drug policy and accelerated its admission to the hospital. In recent years, the sales curve has grown significantly. In the ranking of terminal prostate drugs (Chinese patent medicine) in Chinese public medical institutions, Lingze Tablets rose from the 13th in 2020 to the 3rd in the first half of 2023. In 2023, the sales scale exceeded 200 million yuan. We believe that it is expected to maintain a 25%+growth.
Linglianhua Capsule will be transformed into an OTC variety in April 2024. In the early stage, it will focus on e-commerce channels to create brand influence.
The impact of price reduction for centralized purchase of Bailing Tablets is weakened. After the restrictions on medical insurance are relaxed, the grass-roots promotion is accelerated. Bailing Capsule is expected to be online by the end of Q2
Bailing Tablets entered the Guangdong Alliance for centralized purchase of Chinese patent medicine in April 2022, with a price reduction of 39%. With the implementation of centralized purchase, the revenue of Bailing Tablets will decline by 21% in 2023. It is estimated that the sales volume involved in centralized purchase has exceeded 70%. In 2023, the sales volume of Bailing Tablets will be basically flat, with a year-on-year growth of 7.11% in 2024Q1, which has achieved positive growth. At the same time, since January 2024, the scope of medical insurance indications of Bailing Tablets will be broadened, It will help Bailing Tablets sink into grass-roots medical institutions and open up more markets. In addition, the company's Bailing Capsule received the drug approval document on December 29, 2023, which is the first approved drug with the same name in China. It is expected to be connected to the Internet by the end of 2024Q2, contributing to the income increase.
Traditional Chinese medicine decoction pieces have maintained a rapid growth, and traditional Chinese medicine formula granules have started a restorative growth. In recent years, the company has focused on the strategic goal of "one body and two wings" to layout the business of traditional Chinese medicine decoction pieces and traditional Chinese medicine formula granules. The income of traditional Chinese medicine decoction pieces has maintained a 20%+income growth rate from 2021-2023, and the income scale will reach 460 million yuan in 2023, and the rapid income growth rate of 25%+will continue in 2024Q1; As for the business of traditional Chinese medicine formula granules, by the middle of April 2024, the company had completed 335 national and provincial standard filings of traditional Chinese medicine formula granules. With the increase of national and provincial standard filings, the revenue of traditional Chinese medicine formula granules in 2024Q1 increased by 332.99% year on year, showing a recovery growth trend.
Profit forecast
We estimate that the company's revenue in 2024-2026 will be RMB 2.503/3069/3.725 billion respectively, and the net profit attributable to the parent company will be RMB 5.30/691/886 million respectively. The corresponding PE of the latest closing price will be 20.70/15.87/12.38 times, which will be covered for the first time and will be rated as "buy".
Risk warning:
The release rate under centralized mining is lower than expected; The refined management was not as expected.
