ZHONGSHENGYAOYE(SZ:002317) Huafu Securities·2024-08-01 00:30Investment Rating - The report initiates coverage with a "Buy" rating for the company [2]. Core Views - The company is expected to leverage its core traditional Chinese medicine (TCM) product, Compound Thrombus-Resolving Capsule, through centralized procurement to achieve volume growth by price reduction, thereby enhancing market share and solidifying its market leadership [2][21]. - The company has a robust pipeline of innovative drugs, with significant growth potential anticipated from the upcoming launches of new products, including the flu drug, Anladiwei, and the GLP-1/GIP dual-target innovative drug, RAY1225, which is currently in Phase II clinical trials [2][44]. - The company is projected to achieve a net profit of 290 million, 430 million, and 510 million yuan for the years 2024 to 2026, corresponding to P/E ratios of 33, 22, and 18.5 times, respectively [2][3]. Summary by Sections 1. Company Overview - The company, established in 1979 and listed in 2009, focuses on the production and sales of TCM, with key products including Compound Thrombus-Resolving Capsule and Brain Thrombus-Resolving Capsule, holding a leading position in the Guangdong market [7][21]. 2. Performance and Financials - In 2023, the company reported revenue of 2.61 billion yuan, a decrease of 2.4% year-on-year, and a net profit of 263 million yuan, down 18.3% year-on-year [13]. - The company’s gross margin has remained stable around 60%, while the net margin has shown a declining trend [14][15]. 3. Product Pipeline and Innovation - The company has a diverse product pipeline, with 1 innovative drug already launched and several others in various stages of clinical trials, including RAY1225 and ZSP1601, which target significant health issues such as diabetes and non-alcoholic steatohepatitis (NASH) [2][44]. - The innovative drug RAY1225 has shown promising results in weight loss during Phase I trials, with a weight reduction of 7.9% over six weeks [2][44]. 4. Market Position and Strategy - The company’s TCM products account for over 50% of its revenue, with a gross margin contribution exceeding 60% [17][29]. - The centralized procurement of the core product, Compound Thrombus-Resolving Capsule, is expected to stabilize its market position despite short-term revenue pressures [21][26]. 5. Future Outlook - The company aims to achieve revenue targets of 29.16 billion, 32.4 billion, and 36 billion yuan for 2024 to 2026, with year-on-year growth rates of 11.7%, 11.1%, and 11.1% respectively [11].