Company Profile

Shandong Wit Dyne Health Co., Ltd. engages in the research, development, and production of children healthcare and medicine products. Its products include vitamin A and D drops, compound calcium carbonate effervescent granules, licorice zinc granules, iron dextran granules, pediatric ibuprofen suppositories, azithromycin granules, dimercaptosuccinic acid capsules, rifaximin dry suspension, and oral rehydration salt powder. The company was founded on June 26, 1993 and is headquartered in Jinan, China. （Source:MarketWatch）

Comments

Shandong Wit Dyne Health （“the company”） witnessed robust earnings growth in the first half of the year. The company’s performance was dragged down the joint running of the Wolong School was stopped.

For the first half of 2023, the company reported CNY1.153 billion in revenue, down 5.88% year-on-year; CNY322 million in net profit attributable to shareholders, a year-on-year rise of 5.65%; CNY303 million in net profit attributable to shareholders and excluding gains and losses from non-recurring items, up 2.19% YoY. The revenue and profit were dampened by the cessation of joint running of the Wolong School.

The net profit margin was 53.96% in H1, a year-on-year growth of 7.39pps, mainly due to the cessation of its education business and the improvement of management.

The gross profit margin was 86.21% in H1, a year-on-year rise of 6.15pps; the sales expense ratio was 20.45%, a year-on-year increase of 3.61pps; the management expense ratio was 3.96%, a year-on-year drop of 2.14pps, and the R&D expense ratio was 2.11%, down 0.5pps YoY.

For the second quarter of 2023, the company reported CNY592 million in revenue, down 4.5% year-on-year; CNY158 million in net profit attributable to shareholders, a year-on-year rise of 6.39%; CNY149 million in net profit attributable to shareholders and excluding gains and losses from non-recurring items, up 5.76% YoY.

The company’s subsidiary Dyne Pharma grew faster than in Q1 than in Q1, as its profitability continued to rise.

On the basis of the strong growth in 2022, Dyne Pharma maintained a sustained growth momentum in the first half of 2023. Dyne Pharma achieved a revenue of CY1.131 billion in H1, a year-on-year increase of 4.81%, a net profit of CNY629 million yuan, a year-on-year rise of 14.72%, and a net profit margin of 55.6%, a year-on-year growth of 4.80pps.

For Q2, Dyne Pharma achieved a revenue of CNY581 million yuan, a year-on-year increase of 6.60%, a net profit of CNY314 million yuan, a year-on-year rise of　19.73%, and a net profit margin of 54.04%, a year-on-year growth of 5.92pps.

The company adheres to its overall strategy and the core marketing strategy of " authoritative expert recommendation, convenient channel purchase, and professional category education", as it continuously improved the penetration rate of its major product-Yikexin.

The company also ramped up the promotion of new products, and the sales of Yi D Xin, Dyne Iron and Dyne Calcium rose significantly from the same period last year.

Earnings forecast and investment recommendation

Given the H1 business performance and the cessation of the joint running of the Wolong School, which incurred certain losses, we revise our earnings forecast.

We estimate the company’s net profit attributable to shareholders at CNY614 million, CNY743 million and CNY895 million for 2023, 2024 and 2025, up 16.5%, 21.0% and 20.5% YoY respectively, implying a PE ratio of 12.8x, 10.6x and 8.8x, respectively, based on the closing price on August 18, 2023.

We maintain the rating of “Outperform”。

Potential risks

Lower price for product procurement; poorer-than-expected sales; negative public opinions; fluctuations in the number of births; intensified competition, and fluctuations in raw material prices.