Financial Performance - The company reported a revenue of RMB 3,778,043,000 for the fiscal year ending December 31, 2024, representing a decrease of 16.4% year-on-year[3]. - The annual profit was RMB 840,052,000, a decline of 13.4% compared to the previous year[3]. - In 2024, the overall sales revenue decreased by approximately 16.4% to RMB 3,778,043,000, while net profit fell by 13.4% to RMB 840,052,000[11]. - The gross profit margin was 75.0%, slightly down from 75.1% in the previous year[3]. - The gross profit for the same period was RMB 2,831,749, down 16.6% from RMB 3,394,119 in 2023[61]. - Basic earnings per share decreased to RMB 1.11 from RMB 1.28, reflecting a drop of 13.3%[61]. - The profit attributable to the company's owners for 2024 was RMB 840,052,000, a decrease of approximately 13.4% compared to 2023[55]. - The effective tax rate for the group increased to 26.7% in 2024 from 21.8% in 2023, primarily due to increased withholding tax from profit distributions[54]. Dividend Information - The company declared a first interim dividend of RMB 0.36 per share, with a total dividend payout of RMB 0.47 per share for the fiscal year, resulting in a payout ratio of 42.3%[4]. - The board declared an interim dividend of RMB 0.36 per share, representing a 13.0% decrease compared to the previous year[12]. - The company declared a first interim dividend of RMB 0.43 per share for 2024, totaling RMB 324,822,000, compared to RMB 0.36 per share for 2025, totaling RMB 271,944,000[82]. Sales Performance - The total sales of essential medicines listed in the national essential drug catalog decreased by 22.7% to RMB 1,348,062,000, accounting for 35.7% of total sales[18]. - Injection products experienced a significant sales decline of 29.0%, with the sales of Qingkailing injection dropping by 40.8% to RMB 504,029,000[14]. - Oral products accounted for 66.4% of total sales, but overall sales decreased by 8.1% compared to the previous year[15]. - The sales of soft capsule products fell by 14.9%, primarily due to high base effects from the previous year[16]. - The sales of granule products decreased by 2.9%, with significant declines in pediatric cough granules and cold relief granules[17]. - The sales of traditional Chinese medicine granules fell by 9.3% to RMB 1,090,116,000, accounting for 28.9% of the group's total sales in 2024[22]. - The sales of cardiovascular injection prescription drugs decreased by 23.8% to RMB 627,280,000, accounting for 16.6% of total sales, with only the sales of Shenmai injection increasing by 10.6% to RMB 207,751,000[28]. - The sales of respiratory prescription drugs for the group amounted to RMB 745,758,000, a decrease of 32.3%, accounting for 19.7% of total sales[26]. Research and Development - The company is actively adjusting its product structure and increasing R&D for high-efficiency, low-cost, and quality drugs in response to healthcare cost control policies[6]. - The group invested 2.7% of total sales revenue in R&D, focusing on modern traditional Chinese medicine for chronic diseases[35]. - The company reported a decrease in research and development costs to RMB 100,522 from RMB 110,462, a reduction of 9.0%[61]. - The group is advancing clinical trials for innovative drugs, with two products, "Sai-Luo-Tong capsules" and "JC capsules," completing phase III trials and expected to submit for production approval by the end of the year[33]. - The group aims to develop innovative traditional Chinese medicines targeting cardiovascular diseases, pediatric diseases, and gynecological diseases, leveraging its strengths in these areas[35]. Market Strategy and Expansion - The company aims to enhance management and operational efficiency while adapting to market changes and seizing opportunities from national procurement policies for traditional Chinese medicine[9]. - The company plans to continue focusing on innovation, quality, and collaboration to drive the transformation and high-quality development of the traditional Chinese medicine industry[10]. - The group plans to expand its market development efforts, increasing the number of provinces targeted from 4 to 10 by 2025[24]. - The company's market expansion efforts are supported by favorable national policies aimed at promoting traditional Chinese medicine innovation and development[41]. - The group has developed into one of the largest producers of traditional Chinese medicine granules in the country, ranking among the top five publicly listed companies in this sector[23]. Financial Position - As of December 31, 2024, the group's cash and structured deposits amounted to approximately RMB 6,140,153,000, an increase from RMB 5,888,776,000 in 2023[56]. - Trade receivables rose to RMB 908,115, a significant increase of 19.8% from RMB 758,205 in 2023[62]. - Non-current assets totaled RMB 1,443,007, slightly up from RMB 1,419,263 in 2023[62]. - The company reported trade payables of RMB 367,046,000 in 2024, a decrease from RMB 484,791,000 in 2023[85]. - The aging analysis of trade receivables showed that RMB 853,487,000 was within six months, down from RMB 1,041,352,000 in 2023[84]. Compliance and Governance - The company maintained compliance with the corporate governance code, with a clear division of responsibilities between the chairman and the president[92]. - The audit committee reviewed the audited financial performance for the year ended December 31, 2024[94]. - Deloitte has verified the figures in the preliminary announcement against the audited consolidated financial statements approved by the board on March 28, 2025, but did not provide any assurance or verification conclusion on the preliminary announcement[95].

Investment Rating - Target price: HKD 15.75, representing a 64.5% upside from the current price of HKD 9.57 [1] - Maintains a "Buy" rating [7][22] Core Views - The company is undervalued with a static PE of 7.5x and a dividend yield of 6.1% [7] - Revenue for 2024-2026 is projected to be RMB 4.413 billion, RMB 4.722 billion, and RMB 5.147 billion, respectively, with net profits of RMB 1.012 billion, RMB 1.096 billion, and RMB 1.184 billion [7] - The company's gross margin slightly increased from 75.2% to 75.3% in 2024, reflecting effective cost control [6] - Sales and distribution costs decreased by 20.3% YoY, further improving net profit margins [6] Business Performance - Revenue for the first three quarters of 2024 decreased by 16.9% YoY to RMB 2.887 billion, primarily due to the normalization of post-pandemic demand and the impact of centralized procurement on traditional Chinese medicine products [6] - Revenue breakdown by product: injection products decreased by 26.7% to RMB 1.028 billion, soft capsule products decreased by 19.3% to RMB 391 million, granule products decreased by 2.2% to RMB 457 million, and traditional Chinese medicine formula granules decreased by 12.0% to RMB 824 million [6] - The company is expanding its market presence beyond Hebei and Yunnan provinces, with 90.4% of formula granule sales still concentrated in these two regions [13] Product Pipeline and Innovation - The company is actively developing exclusive innovative traditional Chinese medicine products, with oral drugs now accounting for 64% of its portfolio [7] - Key products in the pipeline include Saitong Capsule and JC Capsule, both of which have completed Phase III clinical trials [9][21] - Saitong Capsule, targeting vascular dementia, is expected to apply for production approval in the first half of 2025, with a potential market size of over 10 million patients in China by 2025 [26] - The company's R&D expenses account for 2.1% of total sales revenue, focusing on chronic disease treatments such as cardiovascular, pediatric, orthopedic, gynecological, and geriatric diseases [9] Market Expansion and Strategy - The company plans to strengthen its market expansion in provinces participating in the inter-provincial alliance, including Beijing, Tianjin, Anhui, and Shandong, while also targeting grassroots markets [29] - The production capacity of traditional Chinese medicine formula granules currently stands at RMB 5 billion annually, with plans for further expansion based on market demand [29] Financial Analysis - The company's gross margin has remained stable at around 75% over the past few years, with a slight increase to 75.3% in 2024 [6][15] - Net profit margins improved to 22.93% in 2024, up from 21.47% in 2023 [15] - The company's ROE is projected to increase from 15.38% in 2024 to 15.83% in 2026, reflecting improved profitability and efficiency [15]

Financial Performance - The company's revenue for the six months ended June 30, 2024, was RMB 2,086,695,000, a decrease of 13.0% compared to the same period last year[5]. - Net profit for the period rose by 27.5% to RMB 626,479,000, with earnings per share increasing by 27.7% to RMB 0.83[5]. - Total sales for the first six months of 2024 decreased by 13.0% to RMB 2,398,680,000 compared to the same period in 2023[12]. - The net profit for the first six months of 2024 was RMB 626,479,000, an increase of 27.5% compared to the previous year, driven by growth in other income and investment income, as well as a reduction in sales and distribution costs[32]. - The company reported a profit before tax of RMB 862,083, which is a 28.5% increase from RMB 671,288 in the previous year[58]. - Basic and diluted earnings per share increased to RMB 0.83, compared to RMB 0.65 for the same period last year[58]. Revenue Breakdown - The proportion of prescription drugs and OTC products in revenue was approximately 88.9% and 11.1%, respectively[6]. - Oral products accounted for 62.7% of total sales, while injection products represented 37.3%[12]. - Sales of injection products fell by 18.6% to RMB 957,253,000, primarily due to high comparison bases from the previous year and centralized procurement impacts[10]. - Sales of traditional Chinese medicine granules dropped by 11.8% to RMB 554,726,000, accounting for 26.6% of total sales[13]. - Prescription drug sales fell by 9.9% to RMB 2,056,849,000, while OTC drug sales saw a significant decline of 32.0%[12]. Cost Management - The company focused on cost control, reducing sales and distribution costs by approximately 20.3% compared to the previous year[7]. - The company's sales and distribution costs decreased by 20.3% year-on-year, accounting for 39.2% of total revenue, attributed to improved cost control measures[29]. - Administrative expenses increased by approximately 4.9% year-on-year, representing 7.0% of total revenue, mainly due to higher salaries and social insurance costs[30]. Cash Flow and Liquidity - Net cash generated from operating activities was RMB 564,116,000, an increase of 75.5% year-on-year[7]. - The group’s cash and cash equivalents amounted to approximately RMB 6,234,974,000 as of June 30, 2024, up from RMB 5,908,776,000 at the end of 2023[34]. - The company reported a net increase in cash and cash equivalents of RMB 341,966 thousand, compared to RMB 330,668 thousand in the prior year[68]. Investment and R&D - The company invested 2.1% of total sales revenue in R&D, focusing on modern Chinese medicine for chronic diseases, particularly in areas where Western medicine lacks solutions[19]. - The company is developing over 100 new drugs based on ancient classic formulas, with the clinical trial for Yigong San Granules already underway[20]. - Total investment income for the six months ended June 30, 2024, was RMB 121,173,000, significantly up from RMB 56,609,000 in the same period of 2023, representing an increase of 114.3%[74]. Dividends - The board declared an interim dividend of RMB 0.11 per share for 2024, totaling RMB 0.54 per share for the twelve months ending December 31, 2024[7]. - The company declared a second interim dividend of RMB 0.11 per share, totaling RMB 83,094,000, to be paid on September 27, 2024[80]. Market Strategy - The company plans to enhance market expansion in provinces like Beijing, Tianjin, Anhui, and Shandong for traditional Chinese medicine granules[13]. - National policies are increasingly supportive of traditional Chinese medicine, promoting innovation and development within the industry[21]. Shareholder Information - Major shareholder 富威 holds 546,802,990 shares, representing approximately 66.12% of the company[44]. - The company has no unexercised options under the 2015 share option plan, which is set to expire on May 28, 2025[48]. Employee and Management - The number of employees decreased to 3,232 as of June 30, 2024, down from 3,436 as of December 31, 2023[40]. - The company reported a total remuneration of RMB 7,664,000 for key management personnel for the six months ended June 30, 2024, compared to RMB 6,468,000 in the same period of 2023, reflecting an increase of approximately 18.5%[97].

Investment Rating - The report assigns a **Buy** rating to Shenwei Pharmaceutical (2877 HK) with a target price of HK$18.00, representing a 106% upside potential from the current price of HK$8.75 [1][2] Core Views - Shenwei Pharmaceutical's exclusive products are growing steadily, and traditional Chinese medicine (TCM) formula granules are expected to recover growth after 2H24 [3] - The company's revenue and net profit are forecasted to grow at a CAGR of 11% and 10% respectively from 2023 to 2026 [3] - The target price is based on a DCF model with a WACC of 12.1% and a perpetual growth rate of 0.5%, implying a 2025E P/E of 11x, in line with the industry average [14] Financial Performance - In 1H24, Shenwei Pharmaceutical reported revenue of RMB 2.087 billion, down 13% YoY, while net profit grew 28% YoY to RMB 626 million [4] - Excluding one-time items, adjusted net profit declined 5% YoY to RMB 409 million [4] - Gross margin improved slightly by 0.1 ppts to 75.3% in 1H24 [4] - Free cash flow was RMB 489 million in 1H24, with an interim dividend of RMB 83 million and a trailing 12-month dividend yield of 40% [4] - Net cash per share stood at HK$7.64, representing 87% of the latest closing price [4] Product Performance - Injection sales declined 19% YoY to RMB 779 million in 1H24, with the flagship product Qingkailing down 9% YoY to RMB 366 million [4] - Soft capsule sales fell 18% YoY to RMB 289 million, while granule sales grew 4% YoY to RMB 345 million, driven by a 12% increase in Huamoyan granules [4] - TCM formula granule sales dropped 12% YoY to RMB 555 million in 1H24, with sales in Hebei and Yunnan hospitals down 1% YoY, accounting for 90.4% of total formula granule revenue [5] Forecast Adjustments - Revenue forecasts for 2024-26 were lowered by 5%/8%/8%, mainly due to weaker-than-expected injection and formula granule sales [11] - Gross profit forecasts for 2024-26 were revised down by 5%/8%/9%, while net profit and EPS forecasts were cut by 5%/8%/8% [13] - Injection revenue forecasts for 2024-26 were reduced by 8%/12%/13%, and formula granule revenue forecasts were lowered by 9%/13%/16% [12] Valuation - The DCF target price of HK$18.00 implies a 2025E P/E of 11x, in line with the industry average of 10x [14] - Shenwei Pharmaceutical trades at a discount to A-share peers, with a 2025E P/E of 6x vs. the A-share average of 20x [19]

Financial Performance - The group's revenue for the six months ended June 30, 2024, was RMB 2,086,695,000, a decrease of 13.0% compared to the same period last year[2] - Net profit increased by 27.5% to RMB 626,479,000, with a net profit margin rising from 20.5% to 30.0%[3] - Earnings per share rose by 27.7% to RMB 0.83[2] - Cash generated from operating activities was RMB 564,116,000, an increase of 75.5%[3] - The total sales for the first half of 2024 decreased by 13.0% to RMB 2,086,695,000, compared to RMB 2,398,680,000 in the same period of 2023[10] - The group's net profit for the first six months of 2024 was RMB 626,479,000, an increase of 27.5% compared to the same period last year, primarily due to growth in other income and investment income, as well as a decrease in sales and distribution costs[32] Sales Performance - Sales of injection products decreased by 18.6% to RMB 779,238,000, accounting for 37.3% of total sales[5] - Oral products accounted for 62.7% of total sales, with a total sales amount of RMB 1,307,457,000, down 9.3%[5] - The overall sales of essential medicines decreased by 9.5% to RMB 840,358,000, representing 40.3% of total sales[8] - Prescription drugs and OTC drugs accounted for approximately 88.9% and 11.1% of total sales, respectively, with prescription drugs down 9.9% and OTC drugs down 32.0%[9] - The sales of traditional Chinese medicine granules fell by 11.8% to RMB 554,726,000, accounting for 26.6% of total sales[11] - The sales of respiratory prescription drugs decreased by 1.7% to RMB 504,343,000, representing 24.2% of total sales[13] - The sales of cardiovascular injection prescription drugs dropped significantly by 30.6% to RMB 345,926,000, making up 16.6% of total sales[15] - Exclusive oral prescription drugs saw a growth of 12.0%, with sales reaching RMB 257,390,000, accounting for 12.3% of total sales[10] - OTC drug sales decreased by 32.0% to RMB 232,526,000, which is 11.1% of total sales[10] - The sales of the "Cleansing Spirit Injection" decreased by 8.6% to RMB 366,322,000, which is 17.6% of total sales[13] Research and Development - The group invested 2.1% of total sales revenue in R&D during the period, focusing on modern traditional Chinese medicine[19] - The group is developing over 100 new drugs based on ancient classic formulas, aiming for regulatory approval[20] - The group is in the process of clinical trials for several innovative drugs, with the goal of submitting production license applications by the end of the year[19] Cash Flow and Investments - The group generated free cash flow of approximately RMB 489,618,000, equivalent to RMB 0.59 per share[3] - Other income increased significantly to RMB 162,297,000 from RMB 8,812,000 in the previous year, primarily from government grants[25] - Investment income rose to RMB 116,556,000, up from RMB 52,486,000 in the same period last year[26] - The group recorded a net foreign exchange gain of RMB 19,118,000, compared to RMB 7,054,000 in the previous year[27] - The group purchased property, plant, and equipment worth RMB 40,518,000 in the first half of 2024, including land leases and machinery[34] Dividends and Shareholder Information - The group declared an interim dividend of RMB 0.11 per share for 2024, totaling RMB 0.54 per share for the twelve months ending December 31, 2024[3] - The group declared an interim dividend of RMB 0.43 per share, totaling RMB 324,822,000, compared to RMB 0.31 per share totaling RMB 234,174,000 in the previous year[52] - The company will suspend the handling of shareholder registration from September 12 to September 13, 2024, to qualify for the second interim dividend for the fiscal year 2024[69] Assets and Liabilities - The group's total assets as of June 30, 2024, were RMB 8,465,054,000, compared to RMB 8,154,730,000 as of December 31, 2023[38] - The net assets of the group increased to RMB 7,336,425,000 as of June 30, 2024, from RMB 7,034,768,000 as of December 31, 2023[41] - Trade receivables, net of expected credit loss provisions, totaled RMB 840,813,000 as of June 30, 2024, an increase from RMB 758,205,000 as of December 31, 2023[55] - The group reported a decrease in trade payables to RMB 460,685,000 as of June 30, 2024, from RMB 484,791,000 as of December 31, 2023[59] - The expected credit loss provision for trade receivables was RMB 34,427,000 as of June 30, 2024, compared to RMB 29,639,000 as of December 31, 2023[55] Corporate Governance - The company has complied with the corporate governance code as per the listing rules, with a deviation noted regarding the roles of the chairman and CEO[70] - The chairman and president, Mr. Li Zhenjiang, holds both positions, with responsibilities clearly defined and approved by the board[70] - The company has adopted the standard code of conduct for securities transactions, ensuring compliance by all directors during the six months ending June 30, 2024[71] - The audit committee has reviewed the accounting principles and policies used by the group for the unaudited consolidated results for the six months ending June 30, 2024[72] Taxation - The effective tax rate increased from 26.8% in the same period of 2023 to 27.3% in the first half of 2024, primarily due to withholding tax from dividends distributed by domestic subsidiaries[31] - The company’s effective tax rate for subsidiaries in China was 25%, with some subsidiaries benefiting from a reduced rate of 15%[49] Miscellaneous - The group added construction projects amounting to RMB 40,518,000 in the six months ended June 30, 2024, compared to RMB 10,523,000 in the same period of 2023[54] - The group signed multiple lease agreements with a term of three years, recognizing right-of-use assets and lease liabilities of RMB 23,797,000 each[54] - The group did not grant any stock options under the share option plan during the reporting period[61] - No securities were purchased, sold, or redeemed by the company or its subsidiaries during the six months ending June 30, 2024[70] - The interim report for 2024 will be sent to shareholders and published on the Hong Kong Stock Exchange and the company's website at an appropriate time[72] - The company expresses gratitude to shareholders and employees for their support and efforts[72]

Investment Rating and Target Price - The report initiates coverage on Shenwei Pharmaceutical (2877 HK) with a **Buy** rating and a target price of HK$19.30 [1][4] - The target price implies an upside potential of **+151%** from the current price of HK$7.69 [2] - The target price corresponds to a 2024 P/E of 12x, in line with the average of comparable companies in the Hong Kong market [5] Core Investment Thesis - Shenwei Pharmaceutical is a mature traditional Chinese medicine (TCM) manufacturer with a robust product portfolio, including injections, TCM formula granules, granules, and soft capsules [4][13] - The company is expected to achieve a **15% CAGR in revenue** and **13% CAGR in net profit** from 2023 to 2026, driven by growth in TCM formula granules and granule segments [4][13] - The company has a strong shareholder return profile, with a historical dividend payout ratio of 40%-50% and an average dividend yield of 4.5% from 2014 to 2023, ranking 6th among 87 healthcare H-shares [4][12] - Free cash flow is expected to remain robust, supporting a potential increase in dividend payout, with projected dividend yields of 7.8%/8.6%/10.0% for 2024-26 [4][12] Key Business Segments and Growth Drivers TCM Formula Granules - TCM formula granules are expected to be a major growth driver, with a projected **20% CAGR in revenue** from 2023 to 2026 [4][13] - The company won all 200 bids in the first national TCM formula granules centralized procurement, which is expected to facilitate nationwide expansion [13][45] - The company plans to expand into new markets such as Beijing, Tianjin, Shandong, and Anhui, leveraging its cost control and operational efficiency advantages [13][45] - The segment is expected to maintain a high gross margin of around 74%, benefiting from the company's early price adjustments and efficient operations [13][45] Injections - The injection segment, which accounted for 39.5% of 2023 revenue, is expected to grow at a **5% CAGR** from 2023 to 2026, driven by the lifting of payment restrictions on five key injection products [13][15] - The core product, Qingkailing Injection, saw a 75% YoY revenue growth in 2023 due to increased demand during the flu season, but is expected to decline in 2024 due to a high base effect [15][41] - The company's injection products are expected to benefit from increased acceptance and reduced adverse reaction rates, supported by stricter regulatory standards [22][26] Granules - The granule segment, contributing 15.4% of 2023 revenue, is expected to grow at a **21% CAGR** from 2023 to 2026, driven by the company's exclusive product, Huamoyan Granules [13][55] - Huamoyan Granules, the only approved TCM for synovitis treatment, is expected to see strong growth as the company increases marketing efforts post-anti-corruption measures [55][57] Soft Capsules - The soft capsule segment is expected to grow at a **15% CAGR** from 2023 to 2026, driven by products like Huoxiang Zhengqi Soft Capsules and Jiangzhi Tongluo Soft Capsules [13] Industry Catalysts and Policy Support - The TCM industry is expected to benefit from favorable policies, including potential inclusion of more TCM products in the National Essential Drug List and continued support for TCM in the healthcare system [4][13] - The lifting of payment restrictions on five injection products in the 2023 National Reimbursement Drug List is expected to drive volume growth [15][16] - Stricter regulatory standards for TCM injections are expected to improve product quality and patient acceptance, benefiting established players like Shenwei Pharmaceutical [22][26] Valuation and Peer Comparison - The target price of HK$19.30 implies a 2024 P/E of 12x, in line with the average of comparable companies in the Hong Kong market [5] - The company's current 2024 P/E of 5.4x is significantly lower than the peer average of 12x, suggesting potential for valuation re-rating [10] - Shenwei Pharmaceutical's strong free cash flow generation and high dividend yield make it an attractive investment in the TCM sector [4][12]

Financial Performance - Full-year sales revenue reached a record high of RMB 4.516 billion, a 14.3% increase compared to the previous year[8] - Net profit for the year was RMB 969.5 million, a 34.1% growth year-on-year[8] - The company achieved a record high sales revenue of RMB 4,516,538,000 in 2023, a 14.3% increase year-on-year, with net profit rising 34.1% to RMB 969,510,000[12] - Gross profit margin improved by 0.7 percentage points to 75.1%, and net profit margin increased from 18.3% to 21.5% in 2023[12] - Earnings per share grew by 33.3% to RMB 1.28, and the dividend payout ratio reached 42.2%[12] - Revenue for 2023 reached RMB 4,516,538 thousand, a 14.3% increase from RMB 3,950,636 thousand in 2022[164] - Gross profit for 2023 was RMB 3,394,119 thousand, up 15.5% from RMB 2,938,314 thousand in 2022[164] - Net profit for 2023 was RMB 969,510 thousand, a 34.1% increase from RMB 722,773 thousand in 2022[164] - Basic earnings per share for 2023 were RMB 128 cents, up from RMB 96 cents in 2022[164] - Profit before tax rose by 35.2% from RMB 917,025 thousand in 2022 to RMB 1,240,253 thousand in 2023[172] Dividend and Shareholder Returns - The company declared a total dividend of RMB 0.54 per share for the 2023 fiscal year, with a dividend payout ratio of 42.2%[8] - The company declared an interim dividend of RMB 0.43 per share for the fiscal year ending December 31, 2024, totaling RMB 324,822,000, payable on May 17, 2024[66] - The company's distributable reserves to shareholders as of December 31, 2023, were RMB 1,534,881,000, compared to RMB 1,023,848,000 in 2022[69] - Dividends paid increased by 31.3% from RMB 241,728 thousand in 2022 to RMB 317,268 thousand in 2023[170] Product Sales and Market Performance - Respiratory system drugs and exclusive oral products showed continuous sales growth, with traditional Chinese medicine formula granules also achieving record sales[8] - Injection products sales increased by 25.5%, driven by a 75.1% growth in Qingkailing Injection sales to RMB 850,751,000[14] - Oral products accounted for 60.5% of total sales, with an 8.0% year-on-year growth despite a slowdown in the second half of 2023[15] - Soft capsule product sales decreased by 3.6% year-on-year, with Wufu Xinnaoqing Soft Capsule sales dropping 24.5% to RMB 135,154,000[16] - Granule product sales increased by 10.1%, driven by exclusive oral products such as Huamoyan Granules, Qihuangtongmi Granules, and Shujintongluo Granules[16] - Sales of drugs listed in the National Essential Drugs Directory increased by 32.8% to RMB 1,743,820,000, accounting for 38.6% of the company's total sales[17] - Prescription drug sales rose by 14.6%, while OTC drug sales increased by 12.6% in 2023[18] - Respiratory system prescription drugs sales surged by 62.4% to RMB 1,102,257,000, accounting for 24.4% of total sales, with Qingkailing Injection sales up 75.1% to RMB 850,751,000[19][20] - Traditional Chinese medicine formula granules sales grew by 8.9% to RMB 1,201,664,000, representing 26.6% of total sales[21] - Cardiovascular Chinese medicine injection prescription drugs experienced a slight decline of 2.0% to RMB 822,845,000, with some products like Huangqi Injection and Xiangdan Injection showing significant growth[22] - Exclusive oral prescription products sales increased by 7.0% to RMB 445,150,000 in 2023, with specific products like Huamoyan Granules, Qihuang Tongmi Soft Capsules, Jiangzhi Tongluo Soft Capsules, and Shujin Tongluo Granules growing by 5.2%, 7.7%, 16.1%, and 40.8% respectively[24] - OTC drug sales grew by 12.6% to RMB 583,217,000 in 2023, with Huoxiang Zhengqi Soft Capsules increasing by 23.3% to RMB 187,249,000, while children's respiratory infection treatment granules saw a 1.0% decline[25] Research and Development - The company's 3.1-class new traditional Chinese medicine "Yiguanjian Granules" was approved for market launch[8] - Two innovative drugs, "Sailuotong Capsule" and "JC Capsule," are nearing completion of Phase III clinical trials[8] - The company's self-developed 1.1-class innovative drug "Yigongsan Granules" was approved for clinical trials, targeting chronic disease anemia treatment[8] - Three innovative drugs, including "Sailuotong Capsule," "Q-B-Q-F Concentrated Pill," and "JC Capsule," are in Phase III clinical trials, targeting vascular dementia, pediatric mycoplasma pneumonia, and upper respiratory infections respectively[28][29] - The company received approval from the National Medical Products Administration to conduct clinical trials for "Yigong San Granules," a new traditional Chinese medicine for chronic disease anemia[30] - The company launched "Yiguan Jian Granules," a 3.1 class traditional Chinese medicine, in December 2023, marking the first approval for this ancient classic formula[31] - Research and development costs decreased to RMB 110,462 thousand in 2023 from RMB 117,454 thousand in 2022[164] Financial Position and Assets - Total assets increased to RMB 9.574 billion in 2023, up from RMB 8.232 billion in 2022[5] - Total liabilities rose to RMB 2.539 billion in 2023, compared to RMB 1.849 billion in the previous year[5] - Shareholders' equity grew to RMB 7.035 billion in 2023, a significant increase from RMB 6.383 billion in 2022[5] - Total assets as of December 31, 2023, were RMB 7,140,275 thousand, compared to RMB 6,566,268 thousand in 2022[165] - Cash and bank balances increased to RMB 5,888,776 thousand in 2023 from RMB 5,026,265 thousand in 2022[165] - Inventory rose to RMB 897,709 thousand in 2023 from RMB 657,659 thousand in 2022[165] - Trade receivables increased to RMB 758,205 thousand in 2023 from RMB 673,380 thousand in 2022[165] - Bank borrowings stood at RMB 300,000 thousand in 2023, compared to none in 2022[165] - Non-current liabilities decreased from RMB 183,742 thousand in 2022 to RMB 105,507 thousand in 2023, primarily due to reductions in lease liabilities and deferred income[166] - Net assets increased by 10.2% from RMB 6,382,526 thousand in 2022 to RMB 7,034,768 thousand in 2023[166] Cash Flow and Investments - Free cash flow for 2023 was RMB 788,310,000, equivalent to RMB 0.95 per share[12] - The company's bank balance and cash totaled RMB 5,888,776,000, with bank debt of RMB 300,000,000 as of December 31, 2023[12] - Operating cash flow before working capital changes increased by 32.9% from RMB 976,388 thousand in 2022 to RMB 1,297,464 thousand in 2023[172] - Net cash from operating activities decreased by 16% from RMB 1,109,676 thousand in 2022 to RMB 932,635 thousand in 2023[172] - Cash and cash equivalents grew by 17.2% from RMB 5,026,265 thousand in 2022 to RMB 5,888,776 thousand in 2023[173] - The company raised new borrowings of RMB 300,000 thousand in 2023, compared to none in 2022[173] - Investment in financial products increased by 66.7% from RMB 300,000 thousand in 2022 to RMB 500,000 thousand in 2023[173] Corporate Governance and Board Structure - The Board of Directors consists of three executive directors, three independent non-executive directors, and one non-executive director as of December 31, 2023[110] - The Board has established mechanisms to ensure independence, with three out of seven directors being independent non-executive directors[111] - The Board of Directors held six meetings and one annual general meeting during the year, with all executive directors attending all meetings[113] - The company's internal audit department regularly reviews the effectiveness of the internal control system and reports key findings to the Board and Audit Committee[114] - The Chairman and CEO roles are combined, with Li Zhenjiang serving as both, which the Board believes is beneficial for executing the company's business strategy[116] - All directors participated in continuous professional development, including training courses and reading updated regulatory materials[117][118] - The company updated its whistleblowing policy in November 2022 to provide guidance and channels for reporting suspected misconduct[120] - The company adopted an Anti-Fraud and Anti-Corruption Policy on November 30, 2022, outlining guidelines and minimum standards of conduct to prevent fraud and corruption[121] - The Remuneration Committee held three meetings in 2023 to evaluate executive directors' performance and discuss contract renewals[123] - The Remuneration Committee's attendance rate for 2023 was 100% for all members except for Ms. Wang Guihua, who attended 1 out of 1 meeting as the newly appointed chair[124] - The company's remuneration policy for directors emphasizes performance-based compensation, including fixed salary, allowances, performance bonuses, and stock options[127] - The Nomination Committee reviewed the board's structure, size, and composition to ensure a balance of expertise, skills, and experience suitable for the company's business needs[130] - The company achieved its board diversity policy targets, including having at least three independent non-executive directors and one with professional qualifications in accounting or financial management[130] - The board currently consists of 5 male and 2 female directors, reflecting diversity in gender, educational background, professional expertise, and industry experience[130] - The company's diversity policy aims to enhance board performance by considering factors such as gender, age, cultural and educational background, race, professional experience, skills, knowledge, and tenure[132] - The company has 2 female directors and aims to maintain at least this level, with plans to gradually increase female representation when suitable candidates are found[134] - As of December 31, 2023, the company has 3,436 employees (including senior management), with a gender ratio of 48.05% male and 51.95% female, achieving a near 1:1 gender balance[134] - One-third of the board members (including executive and independent non-executive directors) must retire annually, with retiring directors eligible for re-election[135] - The audit committee held 4 meetings in 2023, with all members achieving 100% attendance except for one member who attended 3 out of 3 meetings[137] - The Corporate Social Responsibility and Sustainability Committee held 2 meetings in 2023 to formulate and review the group's sustainability policies[138] - The Corporate Social Responsibility and Sustainability Committee members achieved 100% attendance in 2023, except for one member who had no meetings to attend[139] - The board reviewed and adopted several corporate governance policies in 2023, including anti-fraud, anti-corruption, shareholder communication, and revised whistleblowing policies[136][140] - The company's risk management and internal control system is effective and sufficient, with no significant deficiencies identified[142] - The total remuneration for senior management is distributed across 5 individuals, with 1 earning between 0 – 1,000,000 and 4 earning between 1,000,001 – 2,000,000[143] - The external auditor, Deloitte Touche Tohmatsu, was paid HKD 2,250,000 for statutory audit services and HKD 648,000 for other services, including interim financial statement reviews and tax advisory services[144] - The company maintains regular communication with shareholders and investors through meetings, conference calls, and site visits, and publishes detailed company information in annual reports, interim reports, and announcements[146] - The company has adopted a shareholder communication policy to ensure shareholders and potential investors have convenient, equal, and timely access to company information[147] - Shareholders holding at least one-tenth of the company's paid-up share capital with voting rights can request the board to convene an extraordinary general meeting[149] - The company's goodwill related to the manufacturing and trading of pharmaceutical products was valued at RMB 165,956,000 as of December 31, 2023, with no impairment recognized during the year[158] - The company's audit committee held four formal meetings during the year, reviewing internal controls, risk management systems, and financial statements[154] - The company's financial statements for 2023 were prepared in accordance with International Financial Reporting Standards (IFRS) and Hong Kong Company Ordinance disclosure requirements[155] - The company's audit committee recommended the reappointment of Deloitte Touche Tohmatsu as the external auditor for the 2023 fiscal year[154] - The company's cash-generating units' recoverable amount was determined using the discounted cash flow method, involving significant judgments and assumptions[158] - The company's management conducted sensitivity analysis on growth rates and discount rates to assess the impact on the recoverable amount of cash-generating units[158] - The company's audit committee reviewed the independence and scope of the external auditor's work, as well as management's responses to audit recommendations[154] - The company's financial statements were audited in accordance with Hong Kong Standards on Auditing, ensuring compliance with professional ethical responsibilities[156] - The company's board of directors is responsible for assessing the group's ability to continue as a going concern and ensuring the financial statements are free from material misstatement[160] - The company's audit committee evaluated the appropriateness of the valuation method used for goodwill impairment testing, including the discount rate applied[158] Sustainability and Social Responsibility - The company and its subsidiaries contributed 858 hours and RMB 820,000 to charitable activities in 2023[105] - The company emphasizes innovation, social responsibility, and sustainable development as part of its core values and business strategy[108] - The Corporate Social Responsibility and Sustainability Committee held 2 meetings in 2023 to formulate and review the group's sustainability policies[138] - The Corporate Social Responsibility and Sustainability Committee members achieved 100% attendance in 2023, except for one member who had no meetings to attend[139] Risk Management and Compliance - The company faces risks related to product liability claims due to the lack of mandatory product liability insurance in China, which could harm its reputation and operations[63] - The company is closely monitoring China's ongoing healthcare reform, as regulatory changes could negatively impact its business and reputation[64] - The company participates in government-led bidding processes, and failure to win bids in certain provinces could adversely affect market share, revenue, and profitability[65] - The company's risk management and internal control system is effective and sufficient, with no significant deficiencies identified[142] - The company updated its whistleblowing policy in November 2022 to provide guidance and channels for reporting suspected misconduct[120] - The company adopted an Anti-Fraud and Anti-Corruption Policy on November 30, 2022, outlining guidelines and minimum standards of conduct to prevent fraud and corruption[121] Connected Transactions and Contracts - Shenwei Pharmaceutical signed a technical service contract with Shenwei Pharmaceutical Technology for RMB 14,000,000 from November 5, 2019, to November 4, 2024[88] - Shenwei Pharmaceutical Group leased 49,276 square meters of land from Shenwei Pharmaceutical Technology for an annual rent of RMB 1,600,000 from January 1, 2021, to December 31, 2023, with the contract renewed until December 31, 2026[89][90] - Hebei Shenwei leased 20,986 square meters of land from Shenwei (Sanhe) Real Estate Development for an annual rent of RMB 1,200,000 from January 1, 2021, to December 31, 2023, with the contract renewed until December 31, 2026[91] - Shenwei Pharmaceutical Group signed a hotel service contract with Shenwei Pharmaceutical Technology for an annual rent of RMB 1,368,000 from January 1, 2023, to December 31, 2023, with the contract renewed until December 31, 2026[92] - Shenwei Pharmaceutical leased equipment from Shenwei Pharmaceutical Technology for an annual rent of RMB 2,100,000 from January 1, 2021, to December 31, 2023, with the contract renewed at an annual rent of RMB 3,012,000 until December 31, 2026[93] - Shenwei Pharmaceutical leased vehicles from Shenwei Pharmaceutical Technology for an annual rent of RMB 1,284,000 from January 1, 2021, to December 31, 2023, with the contract renewed at an annual rent of RMB 1,304,000 until December 31, 2026[94] - Shenwei Pharmaceutical signed a general service contract with Shenwei Pharmaceutical Technology for property management and catering services, with a transaction amount of RMB 11,050,000 and an annual cap of RMB 12,500,000 for the year ending December 31, 2023, and the contract renewed with an annual cap of RMB 12,500,000 until December 31, 2026[95] - The general service contract between Hebei Shenwei and Shenwei (Sanhe) Real Estate Development Co., Ltd. has been renewed for three years from January 1, 2024, to December 31, 2026, with a proposed annual cap of RMB 3,500,000[96] -

Investment Rating - The report suggests that the company is undervalued with a static PE of 8x and a dividend yield of 6.1%, recommending active attention [1] Core Views - The company's performance has shown rapid growth, with a 14.3% year-on-year increase in revenue to RMB 4.517 billion and a 34.1% increase in net profit attributable to shareholders to RMB 970 million [1] - The growth is attributed to the continuous increase in sales of respiratory system drugs and several exclusive oral products, as well as a record high in sales of traditional Chinese medicine (TCM) formula granules [1] - The gross profit margin improved by 0.7 percentage points to 75.1%, and the net profit margin increased from 18.3% to 21.5% [1] - The return on equity (ROE) rose from 11.32% in 2022 to 13.78% in 2023 [1] - The company's dividend payout ratio for 2023 was 42.2%, with a dividend yield of 6.1% [1] Business Segments TCM Formula Granules - TCM formula granules accounted for 26.6% of the company's total sales in 2023, positioning the company among the top five TCM formula granule listed companies in China [1] - The company successfully bid in the 15-province alliance TCM formula granules centralized procurement, maintaining good prices and facilitating rapid product expansion [1] - The company's production capacity for TCM formula granules can reach an output value of RMB 5 billion [1] Oral Drugs - The proportion of oral drugs in the company's revenue has increased from 54.7% in 2019 to 60.5% currently, with exclusive products like Huamoyan Granules and Qihuang Tongmi Soft Capsules showing continuous growth [1] - The proportion of injectables is 39.5%, indicating further improvement in the company's operational stability [1] - Sales of drugs included in the National Essential Drugs List increased by 32.8% to RMB 1.744 billion, accounting for 38.6% of the group's total sales [1] Innovative TCM Drugs - The company has made significant progress in TCM innovation, with several research and clinical projects advancing smoothly [1] - A 3.1-class TCM new drug, Yiguanjian Granules, has been approved for market, and three other innovative drugs, including Sailuotong Capsule, Q-B-Q-F Concentrated Pill, and JC Capsule, are in Phase III clinical trials [1] - Sailuotong Capsule, an innovative TCM for vascular dementia, is expected to complete Phase III clinical trials this year, targeting a market with significant potential due to the lack of effective treatments [1] Valuation and Outlook - The company's static PE is 8x, and the dividend yield is 6.1%, indicating undervaluation [1] - The company's product pipeline is rich, with oral drugs accounting for 60.5% of revenue, TCM formula granules expected to expand rapidly, and innovative drugs progressing well [1]

Financial Performance - The group's operating revenue for the year ended December 31, 2023, was RMB 4,516,538,000, an increase of 14.3% compared to the previous year[2] - The annual profit reached RMB 969,510,000, representing a growth of 34.1% year-on-year[2] - The earnings per share were RMB 1.28, with a proposed interim dividend of RMB 0.43 per share for 2024[2] - The company achieved a net cash per share of RMB 6.76, equivalent to HKD 7.43[2] - The group reported record sales and profits, with sales exceeding RMB 4.5 billion, driven by growth in respiratory medications and proprietary oral products[3] - The company achieved a record sales revenue of RMB 4,516,538,000 in 2023, representing a 14.3% increase compared to the previous year[6] - Net profit for 2023 reached RMB 969,510,000, marking a growth of 34.1% year-over-year[6] - Gross margin improved by 0.7 percentage points to 75.1%, while net profit margin increased from 18.3% to 21.5%[6] - The company generated free cash flow of approximately RMB 788,310,000, equivalent to RMB 0.95 per share[6] - The profit attributable to the owners of the company for 2023 was RMB 969,510,000, an increase of approximately 34.1% compared to 2022, driven by increased sales revenue and improved operational performance[34] Revenue Breakdown - The sales of injection products increased by 25.5%, driven by a significant rise in the sales of Qingkailing injection, which grew by 75.1% to RMB 850,751,000[8] - Oral product sales accounted for 60.5% of total sales, with an overall growth of 8.0% despite a slowdown in the second half of the year[9] - Sales of essential medicines included in the national essential drug list rose by 32.8% to RMB 1,743,820,000, representing 38.6% of total sales[11] - Prescription drugs and OTC drugs accounted for approximately 87.1% and 12.9% of total sales, respectively, with prescription drugs growing by 14.6%[12] - The sales of influenza treatment respiratory prescription drugs reached RMB 1,102,257,000, an increase of 62.4%, accounting for 24.4% of the total sales[14] - The sales of Qingkailing injection reached RMB 850,751,000, up 75.1%, representing 18.8% of the total sales[14] - The sales of traditional Chinese medicine formula granules increased by 8.9% to RMB 1,201,664,000, accounting for 26.6% of total sales[16] - The sales of exclusive oral prescription products grew by 7.0% to RMB 445,150,000, with significant increases in several specific products[18] - OTC drug sales increased by 12.6% to RMB 583,217,000, with Huoxiang Zhengqi soft capsules growing by 23.3% to RMB 187,249,000[19] Research and Development - The company is advancing multiple research and clinical projects, including the approval of the traditional Chinese medicine "Yiguan Jian Granules" for market[3] - The company plans to continue strengthening R&D investment, focusing on modern Chinese medicine for chronic disease treatment[20] - The group has nearly 100 R&D projects converting ancient classic prescriptions into new traditional Chinese medicines[23] - The company’s research and development costs for 2023 were RMB 110,462,000, slightly down from RMB 117,454,000 in 2022[40] Market Strategy and Opportunities - The group is focusing on digital transformation and smart manufacturing, aiming to establish itself as a leader in the modern Chinese medicine industry[5] - The Chinese government's support for traditional Chinese medicine is expected to enhance market opportunities, with plans to build 130 key hospitals and 64 medical centers by 2025[4] - The company plans to continue expanding its competitive advantages in the formula granule sector and implement a multi-product, multi-channel marketing strategy to drive growth[4] - The company aims to accelerate market development in key provinces and enhance sales in grassroots medical institutions[16] Financial Position and Assets - As of December 31, 2023, the company had cash and bank balances of RMB 5,888,776,000, with net cash per share of HKD 7.43[6] - The total assets less current liabilities amounted to RMB 7,140,275,000 as of December 31, 2023, compared to RMB 6,566,268,000 in 2022[41] - The company’s net assets increased to RMB 7,034,768,000 in 2023 from RMB 6,382,526,000 in 2022[42] - The net book value of property, plant, and equipment as of December 31, 2023, was approximately RMB 1,205,287,000, a decrease of about 1.0% from the previous year[36] Dividends and Shareholder Returns - The company declared an interim dividend of RMB 0.43 per share, with a total dividend related to the fiscal year 2023 amounting to RMB 0.54 per share, resulting in a payout ratio of 42.2%[6] - The company did not recommend any final dividend for the year ended December 31, 2023, but declared an interim dividend of RMB 0.43 per share for the year ending December 31, 2024, totaling RMB 324,822,000[38] - The company declared an interim dividend of RMB 0.31 per share for 2023, totaling RMB 324,822,000, compared to RMB 234,174,000 for the previous year, marking a rise of 38.7%[58] Compliance and Governance - The audit committee has reviewed the audited financial performance for the year ending December 31, 2023, confirming compliance with relevant standards[70] - The company has adopted a higher standard for securities trading by directors than those stipulated in the listing rules, ensuring compliance throughout the year[69] - The company will hold its annual general meeting on May 31, 2024, as per the requirements of the Hong Kong Stock Exchange[65] - The company will publish its annual report, including the board report and audited consolidated financial statements, on its website and the Hong Kong Stock Exchange website[71]

Financial Performance - The company's revenue for the six months ended June 30, 2023, reached RMB 2,398,680,000, representing a 32.1% increase compared to the same period last year[5]. - Net profit for the period was RMB 491,465,000, reflecting a 48.4% increase year-on-year[5]. - Earnings per share rose to RMB 0.65, an increase of 47.7% compared to the same period last year[5]. - Gross profit margin improved to 75.2%, up from 73.0% in the previous year[5]. - The group achieved a revenue increase of 32.1% in the first six months of 2023, with total revenue reaching RMB 2,398,680,000[17]. - Injection products generated revenue of RMB 957,253,000, up 37.3%, accounting for 39.9% of total revenue[17]. - The net profit for the first six months of 2023 was RMB 491,465,000, an increase of 48.4% compared to the same period last year[23]. Sales and Product Performance - Prescription drugs accounted for approximately 85.7% of total sales, while over-the-counter (OTC) drugs made up 14.3%[6]. - Oral product sales grew by 28.9% year-on-year, with significant contributions from soft capsules (19.0% increase), granules (28.5% increase), and traditional Chinese medicine granules (34.0% increase)[10]. - Sales of essential medicines listed in the national essential drug list increased by 57.0% to RMB 928,912,000, accounting for 38.7% of total sales, with 77.0% being prescription drugs[9]. - Prescription drug sales rose by 27.2% to RMB 2,056,849,000, while OTC drug sales surged by 72.6% to RMB 341,831,000[10]. - The company ranks among the top five in the national market for traditional Chinese medicine granules, with sales accounting for 26.2% of total sales and a 34.0% increase[11]. - The company’s injection products recorded a growth of 37.3%, driven by respiratory and cardiovascular prescription drugs[10]. Research and Development - The company is focusing on enhancing research and development, particularly in digital and intelligent supply chain projects[7]. - The group plans to enhance evidence-based medical research for exclusive oral prescription products and increase marketing efforts to boost sales[13]. - The company has continued to focus on the research and development of traditional Chinese medicine products, which is its primary operational segment[46]. Dividends and Shareholder Information - The board declared an interim dividend of RMB 0.11 per share for the fiscal year 2023[7]. - The company declared an interim dividend of RMB 0.31 per share for 2023, totaling RMB 234,174,000, compared to RMB 0.21 per share totaling RMB 158,634,000 for 2022, representing a 47.5% increase in dividend payout[53]. - As of June 30, 2023, the major shareholder, 富威, holds 546,802,990 shares, representing 66.12% of the company's equity[30]. Financial Position and Assets - Total assets as of June 30, 2023, amounted to RMB 7,441,052,000, an increase from RMB 6,782,399,000 as of December 31, 2022[40]. - Cash and bank balances amounted to approximately RMB 5,364,576,000 as of June 30, 2023, compared to RMB 4,831,946,000 on December 31, 2022[23]. - Inventory increased by 21.5% compared to December 31, 2022, with raw materials, work-in-progress, and finished goods accounting for 26.2%, 39.7%, and 34.1% of inventory, respectively[23]. Costs and Expenses - The sales cost for the first half of 2023 was RMB 594,723,000, representing 24.8% of total revenue[18]. - Sales and distribution costs increased by 24.3%, accounting for 42.7% of the group's revenue, compared to 45.4% in the same period last year[22]. - Administrative expenses rose by approximately 8.1%, representing 5.8% of the group's revenue, up from 7.0% in the same period last year[22]. - Research and development costs accounted for 2.0% of the group's revenue, compared to 1.6% in the same period last year[22]. Taxation and Compliance - The effective tax rate increased from 19.5% to 26.8%, primarily due to withholding tax from dividends distributed by domestic subsidiaries[22]. - The company recognized income tax expenses of RMB 179,823,000 for the first half of 2023, up from RMB 80,285,000 in the same period of 2022, reflecting a significant increase of 124.4%[51]. - The company’s subsidiaries in western China benefited from a reduced corporate income tax rate of 15% due to local tax incentives, compared to the standard rate of 25%[50]. Employee and Corporate Governance - The number of employees decreased to 3,533 as of June 30, 2023, from 4,131 as of December 31, 2022, reflecting a reduction of approximately 14.5%[24]. - The company has complied with the corporate governance code during the six months ending June 30, 2023, with all directors confirming adherence to the securities trading regulations[33]. - There have been no changes in director information that require disclosure under the listing rules for the six months ending June 30, 2023[34].