Chairman Statement

Dear Shareholders,

In 2023, following the normalization of centralized procurement and the commencement of industry remediation, the pharmaceutical industry faced a new wave of challenges and opportunities. During the year, the Group has seized the opportunity and steadily implemented its strategic deployment, achieved cost reduction and efficiency enhancement, continued to improve its competitive edge and operating efficiency, strengthened its risk prevention ability, and promoted the steady development of its various businesses. Meanwhile, increased efforts in national policy support to traditional Chinese medicine (“TCM”) industry, coupled with favorable policies such as the liberalization of the TCM formula granule, the Group is well positioned for better development opportunities.

In 2023, the Group’ overall sales revenue and profit both reached record highs. Full-year sales exceeded RMB4.5 billion, representing an increase of 14.3% as compared to last year. Among them, sales of our respiratory system medications and exclusive oral products reported continued increases, while sales of the TCM formula granule also attained record high. The Group recorded net profit of RMB969 million for the year, representing an increase of 34.1% as compared to last year.

After considering the free cash flow and dividend policy, the Board of the Company resolved to declare the first interim dividend of 2024 (in lieu of a final dividend) amounting to RMB43 cents per share. Together with the 2023 second interim dividend amounting to RMB11 cents per share paid in September 2023, the total dividend relating to the profit for the financial year 2023 increased to RMB54 cents per shares. Dividend payout ratio for the year was 42.2%.

Currently, the pharmaceutical industry and the formula granules segment have entered a new stage of major reshuffle and consolidation, which also presents an important opportunity for the Group to strengthen innovation and core competitiveness. As one of the leading modern TCM enterprises, the Group is committed to making the TCM industry bigger and stronger and continuously steps into the forefront of innovative TCM technology. The Group also continues to build TCM innovation platforms, develop innovative TCMs with clinical advantages and characteristics in the advantageous fields of TCM, working for the health and well-being of the general public.

A number of research and clinical projects of the Group are progressing smoothly. Yiguan Jian Granule, a Class 3.1 innovative TCM and an ancient classical prescription, for which the Group was fully responsible for technical research, has been approved for product launch. In addition, phase III clinical trials of the exclusive innovative drugs of the Group, “Sailuotong Capsule” and “JC Soft Capsule” will soon be completed. “Yi Gong San Granules”, a Class 1.1 innovative TCM independently developed by the Group, was also approved to carry out clinical trials during the year. “Yi Gong San Granules” originates from the classical prescription of the Song Dynasty and has been in clinical application for more than 900 years to treat anemia of chronic diseases. At present, there is no specific Chinese patent medicine for treating anemia of chronic disease on the market. “Yi Gong San Granules” will fill the market gap in the treatment of anemia of chronic disease after it is launched, which has great social value.

The year 2023 was the first year of economic recovery in the post epidemic era and a leap forward for the Group in achieving its “14th Five-Year Plan” strategic development. During the year, the Group held a kick-off meeting for the construction of the Smart Factory and established seven specialised project groups to promote the construction of various projects of the Group’s modern Chinese medicine.

industrial park with the objectives of “automation, informatisation, digitisation and intelligence” under the guidance of the development strategy for the next ten years, with a view to developing the Group into the most cutting-edge intelligent factory within the nation and an internationally leading lighthouse factory, and to actively embark on the construction of smart supply chain projects. In particular, the Group focuses on the expansion of Shineway’s modern TCM innovative technology industrialisation and the Smart Manufacturing Demonstration Plant project. Such projects focus on the concept of smart manufacturing and utilise advanced technological tools such as the industrial internet, the internet of things, big data analytics, artificial intelligence and cloud computing. By applying these advanced technologies, the Group is able to embark on a new chapter in the Group’s third venture development with high quality.

China continued to ramp up its support and promotion for the development of TCM during the 14th Five-Year Plan period. During the year, the State Council issued the “Implementation Plan of Major Projects for the Revitalization and Development of Traditional Chinese Medicine”, which proposed the implementation of eight major projects and twenty-six construction projects, and established objectives to, inter alia, facilitate the development of TCM to become an important support for the construction of a healthy China by 2025. Among which, it stipulated the establishment of 130 key hospitals featuring TCM, layout of 35 national TCM bases for the prevention and control of epidemic, and construction of 64 county-level medical centers of TCM in “Three Regions and Three Autonomous Prefecture (三區三州)” and 50 “flagship” hospitals for the synergy of TCM and Western medicine. In addition, the State Administration of Traditional Chinese Medicine, the National Development and Reform Commission, and the National Health Commission have jointly issued the “Notice on Comprehensively Strengthening the Construction of County-Level Traditional Chinese Medicine Hospitals and Basically Achieving Full Coverage of County-Level Traditional Chinese Medicine Institutions”, which aims to basically achieve full coverage of county-level TCM institutions and consolidate the main battlefield of grass- root TCM services. The number of TCM institutions will increase significantly in an orderly manner.

At present, Chinese medicine is at its best strategic opportunity for development in recent years, and the Chinese medicine industry has broad prospects. The Group will continue to promote the marketing strategy of multi-products, multi-channels and multi-models in our core business to drive performance growth, and will continue to expand its dominant regional and national competitive advantages in formula granule. Moreover, the Group will actively press ahead with its digital transformation and smart manufacturing strategic planning, so as to build the Group into a business group capable of digital operation and management and digital marketing, with an aim to contribute to the high-quality development of Chinese medicine for the betterment of the people.

2024 marks the 40th anniversary of Shineway Pharmaceutical’s reform and development, and the 20th anniversary of the Company’s listing on The Stock Exchange of Hong Kong Limited. On behalf of the Board, I would like to express my heartfelt appreciation again to the shareholders, customers and strategic partners for their continued trust and unremitting support, as well as the management team and all staff personnel for their hard work amid the extremely challenging environment last year. Let us continue to work hard together to create sustainable growth of Shineway Pharmaceutical.

In 2021, using our “14th Five-Year” strategy as a guide, let’s achieve outstanding results with resolute actions and begin the Group’s new journey of greats performance!

Li Zhenjiang
Chairman of the Board
Hong Kong, 28 March 2024