1H21 performance is in line with our expectations
The company announced 1H21 results: revenue of 1.33 billion yuan, an increase of 14.7% over the same period last year; net profit of 620 million yuan, up 4.3% from the same period last year; and diluted profit per share corresponding to 0.92 yuan per share, a decrease of 16.4% over the same period last year (mainly due to the dilution of new shares issued by Hong Kong stock IPO in March 2021), in line with expectations.
Trend of development
1H21's performance is in line with expectations, and mature products provide stable cash flow. 1H21's revenue was 1.33 billion yuan, up 14.7% from the same period last year and 75.7% from the previous month. The sales revenue of 1H21 core product Ridaxian is 1.1 billion yuan, which is still 9.9% year-on-year growth compared with 1H20's high base. The company has carried out effective channel and life cycle management for Ridaxian. As of June 21, the GTP model covers 827 DTP pharmacies, contributing more than 60% of sales. The expansion of new indications such as COVID-19 vaccination and sepsis continues to be promoted. We expect these measures to ease the pressure brought by the new collection of thymus method. The transfer of the imported variety Qiantai Import Drug Registration Certificate was completed in January 2021. At present, the transfer of distributors is in progress, and the product income of 1H21 Novartis transferred to the company province is 54 million yuan.
Stable profitability, commercial and efficient operation. 1H21 achieved a gross profit of 1.05 billion yuan, up 13% from the same period last year, with a gross profit margin of 78.6%, down 1.2 ppt from the same period last year; R & D expenditure was 39.51 million yuan, up 32% from the same period last year; and the management expense rate was 7%, up 0.4ppt from the same period last year. The sales expense rate is 18.9%, which is 4.2ppt higher than that of 1H 20 (due to the influence of epidemic situation, the sales of Ridaxian is higher and the sales activity is less, so the base of expense rate is lower), the 5.4ppt is lower than that of 1H 19, and the commercialization efficiency of the terminal is improved.
R & D-driven transformation, innovative products into the harvest period. As of June 2021, the company has disclosed the pipeline combination including 5 late-stage drugs and 3 early-stage drugs, of which Nomicol has been approved for listing in China in January 2021, and the company plans to start domestic commercialization in 3Q21. Nacituximab has been piloted in Boao in June 2021, BLA has been submitted to NMPA in July 2021, and RRx-001 domestic Phase III IND has been approved (the company is expected to complete in 2023). There are still a number of potential milestones in the company's pipeline from 2021 to 2022. We expect that the overseas II basket study of PEN-866 will be completed in 2022. The study of Ridaxian for inactivated COVID-19 vaccination, sepsis and pancreatitis has been completed, and we expect to disclose clinical data in 2021-2022. We expect that in the future, with the gradual commercialization of pipeline products, the company's product structure will gradually upgrade to innovative products.
Profit forecast and valuation
The current share price corresponds to 6.5 times 2021 / 5.7 times earnings in 2021 / 2022, leaving earnings forecasts unchanged for 2021 and 2022. To maintain its outperforming industry rating, the company's business is progressing smoothly and its operation is sound, but in view of the recent adjustment in the pharmaceutical sector of Hong Kong stocks, we have lowered our target price by 25% to HK $15.00, corresponding to 9.9 times 2021 price-to-earnings ratio and 8.7 times 2022 price-to-earnings ratio, which is 52% higher than the current stock price.
Risk
The product pattern deteriorated, the patent expired drugs were collected, and the progress of new drug research and development was not as expected.