The company's FY22 net loss narrowed markedly to 400 million yuan, but after deducting equity payments, adjusted net loss was 360 million yuan, an increase from FY21's 230 million yuan. According to FY22 and the latest management guidance, we raised our 2023-24E adjusted net loss forecast and lowered the target price based on the RnPV valuation model to HK$12.5, corresponding to a target market value of US$870 million. We believe that as sentiment in the Hong Kong stock innovative drug sector gradually recovers and core eye medicine assets continue to make clinical and regulatory progress, there is still huge room for revaluation of the company's value and maintaining the “buy” rating.

Regarding the main expenses in 2023, the company has the following expectations: 1) the growth rate of R&D and administrative expenses will be relatively manageable; 2) considering the continuous expansion of the commercialization team, the advancement of sales work on existing varieties (hot compression eye masks, tonometers, and timolol generic drugs with bemethoxine A), and the entry of cyclosporine A under marketing review into the commercialization preparation stage, sales expenses are expected to rise significantly; 3) Product introduction related expenses will be more cautious, leaving more room for clinical development investment.

According to the above guidelines, we maintained the 2023E/24E revenue and gross margin forecast, lowered the FY23/24E R&D and administrative expenses forecast and raised the sales expenses forecast. The net loss forecast was 11%/11% narrower than before; however, considering the decline in the proportion of equity payments in expenses, actual cash expenses will increase, so the adjusted net loss forecast increased by 12%/19% compared to the previous one. Furthermore, although the company's low-concentration atropine NVK-002 has excellent curative effects and a first-mover advantage, considering that competition in this field is gradually intensifying, we lowered the peak market share forecast for this product from 25% to 22%, and peak sales adjusted by POS were reduced by 12% to 1.5 billion yuan. By the end of 2022, the company had a cash balance of nearly 2 billion dollars on its accounts, enough to support its operating expenses for the next three years.

We continue to value the company based on the RnPV model and get the company's latest target price of HKD 12.5.

We recommend that investors focus on the completion and approval progress of marketing applications for cyclosporine A ophthalmic gel in 2023; the reading of Mini-Champ trial data for NVK-002 in July; and sales progress of existing commercialized products.

Investment risks: Delays in the development and marketing of innovative drugs; increased competition for core varieties.