Performance review
The 1H22 performance of Dongyang Guangyao exceeded our expectations.
The company announced 1H22 results: revenue of 1.29 billion yuan, an increase of 539.5% over the same period last year; adjusted net profit of 190 million yuan (1H21 adjusted net loss of 346 million yuan), turning losses into profits. Under the background of the stabilization of epidemic prevention and control, the increase in the number of visits for diagnosis and treatment, and the emergence of summer influenza in many provinces and cities in the south, the sales of the company's core antiviral drug Kewei returned to exceed expectations, and the revenue and adjusted net profit exceeded our expectations.
Trend of development
Sales of core products Kewei rebounded faster than expected. Oseltamivir phosphate (oseltamivir phosphate) is a first-line drug for the treatment of influenza. 1H22 sales are 1.01 billion yuan, up 1775.5% from the same period last year. The main reasons are as follows: 1) the prevention and control of the epidemic situation of 1H22 in China tends to be stable, and the number of visits and prescriptions of medical institutions have obviously recovered. 2) according to the China National Influenza Center, as of June 2022, the positive rate of influenza virus detection in southern provinces was higher than that in the same period in 2019-21. Guangdong, Jiangxi, Fujian and other provinces have issued summer influenza warning; 3) the company's academic promotion activities and new channel development activities have increased. 1H22, the company's sales expenses were 530 million yuan, an increase of 106% over the same period last year. After the 2020-21 destocking cycle, Kewei's channel inventory has returned to normal. We believe that due to the seasonal nature of influenza (more common in spring and winter) and the summer influenza peak in southern provinces and cities, Kewei's income is expected to maintain a recovery trend in the second half of the year.
The results of the seventh batch of drugs selected by national mining revealed that Kewei faced collection pressure in the short term. In 2021, the sales revenue of Kewei granular type / capsule type was 470 million yuan / 85.11 million yuan respectively, accounting for 84.7%. According to the July announcement of Shanghai Sunshine Pharmaceutical Purchasing Network, in the seventh batch of national drug procurement, Kewei (75mg capsule type) won the bid at the lowest price of 1.00 yuan per tablet (down 77 percent compared with the price of Jiangsu Province in August 2022) to supply Shandong, Hubei, Guangdong and Chongqing, with a market share of about 5.058 million yuan (excluding reserve provinces). The company's capsule type Kewei has won the important market of the populous provinces of Guangdong and Shandong with low and medium price. At the same time, it focuses on the granule dosage form and strives to reduce the impact of collection and mining.
The growth of endocrine business is steady, and the diabetes pipeline is worth looking forward to. 1H22, the company's revenue from endocrine / metabolic drugs was 42.47 million yuan, an increase of 24% over the same period last year. The independent research and development of Mendong insulin (30) injection and protamine recombinant human insulin injection (premix 30R) are in the registration review stage, and the pyroglutamate Ronggling and Lilaluptide, which are purchased from Guangdong East Sunshine Pharmaceutical Co., Ltd. for the treatment of diabetes are in the clinical phase of III, we believe that the endocrine drug plate is expected to become a new performance growth point of the company.
Profit forecast and valuation
Considering the higher-than-expected recovery of 1H22 Kewei sales, we raised the core EPS forecast for 2022 by 19% to 0.45 yuan, and introduced the core EPS forecast of 0.47 yuan for the first time in 2023. The current share price corresponds to a core price-to-earnings ratio of 10.6 / 10.3 in 2023. Considering the gathering pressure the company faces in the short term, it maintains a neutral rating and a target price of HK $6.00, corresponding to 11.4 times / 11.1 times 2022 prime 23 core price-earnings ratio, which has 7.3% upside compared to the current share price.
Risk.
Relying on a single product, the research and development progress is not as expected, and the policy suppresses the price more than expected.
