Main points of investment
Performance: rapid profit growth
2022H1: the company achieved operating income of 380 million yuan, an increase of 33.5% over the same period last year; net profit of 120 million yuan, an increase of 48.8% over the same period last year; and net profit of 120 million yuan, an increase of 44.0% over the same period last year.
2022Q2: the company realized operating income of 180 million yuan, an increase of 24.4% over the same period last year, a net profit of 50 million yuan, an increase of 34.8% over the same period last year, and a net profit of 50 million yuan, an increase of 21.8% over the same period last year. We believe that the revenue and profit growth of the company's 2022H1 and Q2 are in line with our expectations.
Growth analysis: CDMO business is growing rapidly, capacity construction is gradually promoting the rapid growth of CDMO business, and the project structure is constantly optimized: the company's 2022H1CDMO business revenue is 220 million yuan, an increase of 49.2% over the same period last year, and the proportion of revenue has increased to 57.7% (2021H1 revenue accounts for 51.5%). From the project structure, "the company has a total of 19 ongoing CRO/CDMO/CMO business projects (13 CRO/CDMO projects and 6 CMO projects). Among them, there are 11 API projects, 8 advanced intermediate projects, 12 clinical projects and 7 commercial projects, and the project structure is constantly optimized.
API business is progressing steadily, with leading market share of dominant varieties: according to the company's report that "the company's main products entecavir, bicyclol, posaconazole, citafloxacin, nebirol and non-blister are in the forefront of the international market share", we are optimistic that under the API project strategy of the company's "time window", API intermediate business is expected to maintain steady growth.
Steady progress in production capacity construction: according to the company's report, the project of characteristic API and key intermediates: "Seven workshops have completed plant construction, of which four workshops are undergoing equipment installation and one workshop has entered trial production."
Preparation project: "highly active preparation workshop and oral solid preparation workshop have completed plant construction and equipment installation, and all products are in the follow-up work such as process verification as planned." we are optimistic that the company's new production capacity will bring about an improvement in profitability after it has been completed and put into production.
Profitability analysis: 2022H1 gross profit margin decreased, net profit margin increased 2022H1 gross profit margin to 51.1%, year-on-year decline in 6.3pct, we think it is mainly due to the increase in the price of raw materials The analysis of the expenditure rate during the period shows that the financial expense rate of 2022H1 is-5.8%, the year-on-year decline of 6.0pct is mainly due to the influence of exchange earnings, the R & D expense rate is 7.5%, and the year-on-year decline of 4.1pct. Looking forward to the whole year, we expect that the R & D expense rate will remain at a high level, administrative expense rate 10.4%, year-on-year decline 1.0pct, sales expense rate 1.1%, basically unchanged, under the influence of the above factors The company's 2022H1 net profit rate is 32.3%, which is higher than the same period last year. Taking into account the changes in the gross profit margin and structure of the company's products, R & D investment, overseas sales market development, and the increase in depreciation and amortization expenses due to the release of new production capacity, we expect the company's overall net profit rate to decline slightly from 2022 to 2024.
Business quality analysis: operating cash flow decreased compared with the same period last year
2022H1's operating activities generated cash flow of 30 million yuan, down 84.1% from the same period last year. From the cash flow transformation of income and profit, the company's "cash / operating income received from selling goods and providing services" decreased from 105.0% of 2021H1 to 81.8% of 2022H1, and "net cash flow / net income from operating activities" decreased from 175.2% of 2021H1 to 18.8% of 2022H1. We believe that it is mainly due to the increase in the amount of cash paid by 2022H1 for goods and services compared with the same period last year (249.1%) at the same time as the increase in accounts receivable, which we believe may be related to factors such as supply chain inventory.
Viewpoint: from API niche varieties to sharing new business and large-scale varieties, we believe that the company has proved the comparative advantages of technical capability, customer base and compliance capacity in the small but beautiful high-barrier API varieties. Based on the company's expanding customers, we believe that CMO/CDMO business will continue to maintain a high growth rate; API business is expected to continue to expand with the product echelon and production capacity. Generic drugs, innovative drug business layout will open the long-term ceiling.
Profit forecast and valuation
We expect the company's EPS to be 0.56,0.70,0.91 yuan per share respectively from 2022 to 2024, and the closing price on September 2, 2022 corresponds to 49 times PE in 2022. We are optimistic about the company's technical capabilities, customer base and compliance capacity advantages in the areas of API and CMO/CDMO, and maintain its "overweight" rating.
Risk hint
Production safety accident and quality risk; exchange rate fluctuation risk; order delivery volatility risk; medical regulatory policy change risk