Revenue in 2022 was slightly higher than our expectations, and net profit was significantly higher than our expectations for the company to announce its 2022 results: revenue/net profit attributable to the mother was 113.3/1.58 billion yuan, an increase of 16.8%/60.0% over the previous year. The company's revenue from the API and animal insurance sector grew rapidly, and revenue was slightly higher than our expectations; the company's expenses were well controlled, credit impairment losses were corrected, and net profit was significantly higher than our expectations.
Development trends
Prices of intermediates and APIs are still in an upward range. In 2022, the company's intermediates/APIs segment revenue was $1,60/5.18 billion, a year-on-year decrease of 5.9%/an increase of 30.4%. The average foreign sales price of the company's 6-APA, penicillin G potassium industrial salt, semi-synthetic penicillins 2022 was 225.0 yuan/kg, 89.4 yuan/BOU, 210.2 yuan/kg, up 35.6%, 34.8%, and 27.4% year-on-year. According to our estimates, 2H22's average foreign sales price of the above products increased 3.0%/25.7%/8.6% month-on-month respectively, and is still in an upward range. The company said that 1Q23 prices are still rising year on year and month over month, and there is still room for future price increases. We believe that the company's downstream demand-side growth is expected to cover the rise in upstream costs and prices. At the same time, the company will benefit from the scale of production capacity and cost control capabilities, and look forward to the sector's performance in 2023.
Insulin is expected to bottom out, and attention will be paid to subsequent developments in endocrine pipeline research and development. In 2022, revenue from the insulin sector decreased 18.0% year on year to 1,176 million yuan; of this, revenue from human insulin/mondendon insulin/glycine insulin was 6.6/42/90 million yuan, -24%/+651%, respectively. National insulin collection was implemented around May 2022. The average drop in products selected by the company was 40%, better than the average decline in collection of 48%. The company expects that by May of this year, the insulin segment will complete 130% of the agreed procurement volume for the first year of the collection cycle (June 2022 to May 2023) (of which is 220% of ginsine insulin and 350% of Mendon insulin). We believe that the revenue of the insulin business is expected to record impressive growth in 2023. In terms of the endocrine research pipeline, the company's liraglutide products are in clinical phase III, and the company expects to be marketed in 2024; simeglutide obtained clinical approval for hypoglycemic indications in 2022, and has already declared an IND for slimming indications this year; the company expects to develop its own three-target agonist and apply for clinical use around April this year.
The growth of veterinary drugs exceeded expectations, and cooperation with Muyuan Co., Ltd. progressed steadily. In 2022, the company's insurance sales revenue increased 106% year-on-year to 800 million yuan (the annual guideline in the 1H22 report was 600 million yuan). We believe that the insurance revenue in 2023 is expected to grow steadily. In July 2022, the company set up a joint venture with Muyuan Co., Ltd. to cooperate in the field of veterinary medicine. We expect that within the next 2 years, Muyuan Co., Ltd. is expected to bring an annual revenue contribution of more than 1 billion yuan to the company's animal insurance sector.
Profit forecasting and valuation
Due to the company's rapid revenue growth and good cost control, we raised the 2023 EPS forecast by 21% to 0.93 yuan, and introduced the 2024 EPS forecast of 0.97 yuan for the first time. The current stock price corresponds to the 2023/24 price-earnings ratio of 4.6x/4.3x. Maintaining an outperforming industry rating, considering the growth of the company's endocrine research pipeline and animal insurance business, the target price was raised by 14.5% to HK$6.3, corresponding to the 2023/24 price-earnings ratio of 5.7x/5.3x. There is room for 24.8% upward from the current stock price.
risks
R&D progress fell short of expectations; insulin products fell short of expectations; risk of falling intermediate prices.