The company's overall operation is steady, the traditional Chinese medicine sector has obvious brand advantages, and equity incentives are tied to performance growth
As an established OTC traditional Chinese medicine company, Guilin Sanjin's core variety Sanjin tablets and watermelon cream series products are well-known, and their brand recognition is high, and they have contributed stable cash flow to the company for a long time. After splitting the loss-making business, the company's net profit in 2019-2021 was 423 million yuan, 335 million yuan, and 550 million yuan, an increase of 64% year-on-year in 2021. The company is well-funded and has an excellent balance ratio. As of 202Q1, the company's book monetary capital was 1,601 billion yuan, and the balance ratio remained below 30%.
At the same time, in December 2021, the company announced the first phase of the employee stock ownership plan. The conditions for unlocking were that the main business revenue in 2022 was not less than 1,925 billion yuan, with an estimated year-on-year growth rate of 11%, with an unlocking ratio of 50%; the main business revenue in 2023 was not less than 2,125 billion yuan, which estimated the corresponding 11% year-on-year growth rate, unlocking the remaining 50% to increase the guarantee for performance growth targets.
The strategic transformation entered the biopharmaceutical sector, starting the second growth curve. Currently, Guilin Sanjin is strategically entering the biopharmaceutical sector through its subsidiary Shanghai Sanjin Biotech, which wholly owns Baochuan Biotech and Baifan Biotech. Since it is still in the early stages of investing in R&D pipelines and production bases, Shanghai Sanjin is currently still in a state of loss.
The company wholly acquired Baochuan Biotech in 2013. After years of layout, Baochuan Biotech now has an excellent platform and sufficient R&D pipelines, covering bioinnovative drugs and biosimilar drugs. The fastest progressing all-human anti-PD-L1 antibody injection has entered phase II clinical stage in November 2021, and it is expected that the next 3-5 years will usher in a harvest period of 3-5 years. The Baifan bioantibody base has been officially put into operation. Since it is in its infancy, 2021 is temporarily positioned to meet the production needs of its own products while at the same time undertaking the CDMO business with surplus production capacity. However, public information shows that cooperation has been reached with more than 10 biomedical companies, and the release of production capacity will contribute to considerable performance growth. It is currently the company's most anticipated strategic sector.
The painful period of structural adjustment will pass, and the new business will bring about a reshaping of valuation
Since the company has been on the market for a long time, the rapid growth momentum of traditional Chinese medicine products is insufficient. Currently, the market remains stable. In the future, it will rely on Internet marketing efforts and online and offline linkages to continue its steady performance. Therefore, the company is also actively developing strategies and implementing a “two wings in one” development strategy with traditional Chinese medicine and pharmaceuticals as the main body, biopharmaceuticals and the health industry. The CDMO business is the company's incremental business. Since the Baifan base was only officially put into operation at the end of 2020 and has just contributed to performance in 2021, we expect the gradual release of 12,000L production capacity starting in 2022, with revenue of 2.3/55/ 850 million yuan respectively in 2022-2024. We believe that the company has poor expectations and needs to reconsider the business layout of Guilin Sanjin and evaluate the CDMO business accordingly.
Investment advice
We expect that the company's revenue from 2022 to 2024 was 21.3/26.0/3.15 billion yuan respectively, up 22.4%/21.8%/21.4%, respectively, and net profit of 4.0/4.6/540 million yuan respectively, up 16.2%/15.5%/16.0% year-on-year respectively. The corresponding EPS was 0.68/0.78/0.91 yuan, and the corresponding valuation was 19X/16X/14X. Considering that the company's main business is stable, the incremental business CDMO sector has strong potential. It was covered for the first time, giving a “buy” investment rating.
Risk warning
Performance growth fell short of expectations; progress of the epidemic exceeded expectations; and biopharmaceutical CDMO business orders and production capacity fell short of forecasts.
