Performance growth in 2022 was impressive, with a target price of 19.69 yuan to maintain “increase holdings”

China Resources Shuanghe announced that its revenue for the full year of 2022 was 9.45 billion yuan (+3.7% yoy) and net profit of 1.16 billion yuan (+24.4% yoy). The steady revenue side was mainly due to the impact of the volume of medical treatment of infusions and in-hospital preparations during the year, while the profit growth rate was higher than that of revenue mainly due to a significant reduction in sales expenses (cost savings from collection and online activities) and reduction in impairment items. Looking ahead to 2023, considering that strong demand for large infusion 1Q will lay a high foundation, compounded by chronic diseases and the gradual recovery of specialty drug sales, and the rapid release of new products collected from winning bids, we are optimistic that the company will return to double-digit revenue growth in 2023, and profit margins will benefit from continued improvement in cost control. We expect the company's EPS for 23-25 to be 1.27/1.44/1.60 yuan, to be given 15.5 times the PE for 23 years (because some of the company's varieties are involved in harvesting, which is discounted compared to the comparable company Wind's 22-year average of PE), with a target price of 19.69 yuan to maintain an “increase in holdings”.

Infusion sector: Dragged down by hospital-side diagnosis and treatment in 2022, optimistic about a rapid recovery in demand in 2023

The infusion sector's revenue in 2022 was 2,597 billion yuan (down 1.0% from the previous year), mainly due to damage to hospital-side diagnosis and treatment (4Q22 accelerated loss), compounded by loss of bid for Fosun's collection of key varieties. Looking ahead to 2023, we estimate that infusion plates may achieve double-digit growth. The main reasons are: 1) 1Q23 saw a rapid increase in demand for large infusions due to the high number of patients admitted to the clinic for fever (among which plastic bottles/soft bags may grow the fastest); 2) High value-added BFS (inner sealed polypropylene bag infusion) is the company's exclusive product. As the company's exclusive product, we are optimistic about long-term growth; and 3) we expect therapeutic infusion varieties to maintain around 20% of total infusion revenue. The subsequent launch of new products boosted gross margin in the infusion sector.

Non-infusion sector: chronic disease/specialty varieties are expected to recover, and those that have won bids are expected to be released rapidly

The non-infusion sector achieved revenue of 6.75 billion yuan in 2022 (up 5.3% year on year). We are optimistic that the sector's revenue will grow at a year-on-year rate of about 10% in 23, of which: 1) The chronic disease sector's revenue in 2022 was 3.15 billion yuan (up 5.3% year on year, of which collection involved a growth rate of 12%). Considering that the eighth batch of collection involved potential new products, the seventh batch of winning varieties such as Fuhuiyue, Betchling, and nifedipine tablets continued to grow. We expect the revenue growth rate of the sector to stabilize in '23. impact 10%; 2) The specialty sector's revenue in 2022 was 1.42 billion yuan (+9.1% yoy). We are optimistic that the sector is expected to achieve revenue growth of more than 10% in '23 through recovery of abdominal diarrhoea, magnesium valproate tablets/sustained-release tablets, and accelerated release of new products that won bids such as pregabalin.

Active transformation: innovative imitation of two-wheel drive, BD provides potential additional volume

The company is actively seeking new ideas combining imitation: 1) building generic drug clusters (17 of the company's generic drugs/consistency evaluations have been approved in 2022), forming 5 differentiated platforms (including peptide technology and controlled release technology platforms); 2) innovative drug layout to increase BD efforts. We are optimistic that the company will cooperate with Real Life's Azvudine OEM to provide revenue growth and sign a contract with Ligand to obtain Asian authorization for the CX2101 project. Furthermore, I am optimistic about the progress of the company's self-developed Fascin anti-tumor/antiviral prodrug platform.

Risk warning: The recovery of large infusions fell short of expectations, and the price reduction of collected varieties exceeded expectations.