2022 revenue and shareholder net profit far exceeded market expectations
The company's revenue for the full year of 2022 increased 16.8% year on year to 11.33 billion yuan (RMB, same below), gross profit increased 18.0% year on year to 4.97 billion yuan, and shareholders' net profit increased 59.9% year on year to 1.58 billion yuan. By sector, revenue from the intermediates business decreased 5.9% year-on-year to about 1.6 billion yuan, while revenue from the API and pharmaceutical business increased 30.4% and 13.0% year-on-year respectively to 5.18 billion and 4.56 billion yuan. The company's API sales volume and price rose sharply during the domestic epidemic, and sales revenue far exceeded expectations. In the pharmaceutical business, revenue of insulin products, which are the most popular in the market, fell 18% year-on-year due to collection in 2022, but the decline was less than expected. Sales of glycine insulin, the main product in the insulin field, surged more than 40% year-on-year after the price was reduced, causing revenue to exceed expectations. The sales revenue of Mendon insulin, which went public in 2021, also slightly exceeded expectations. At the profit level, the company's sales management expenses ratio in 2022 fell 3.2 percentage points year on year, causing shareholders' net profit to exceed market expectations.
Prices of APIs are high in the domestic market. The API business revenue forecast was raised to forecast the company's API business's main products, such as cephalosporin and semisynthetic penicillin. Since the second half of 2022, due to the impact of the domestic epidemic and influenza A, the market prices of these products have risen sharply, and are currently also at a high level. Management said that it is still possible to raise the ex-factory price this year according to market conditions, so we raised our API business revenue forecast and expect the API business revenue CAGR for 2022-25E to be 6.8%.
The insulin business comes out of the haze of collection
The implementation of insulin collection in China in July 2022 led to an average price reduction of 48% for selected products. We originally had conservative expectations for insulin revenue, but sales of Ganjin insulin and Mendon insulin increased dramatically after the price reduction, indicating that the products were highly recognized by medical institutions. Currently, insulin collection has passed, and sales will continue to increase in the future. Therefore, the revenue forecast for the insulin business was raised, and the 2022-25E CAGR is expected to be 13.8%.
Maintaining the “buy” rating, the target price was raised to HK$6.65
Based on the above situation, we raised the company's 2023-24E revenue forecasts by 26.0% and 24.3%, respectively, and shareholders' net profit forecasts by 26.9% and 14.8% respectively. We are still pricing at 7.0 times 2023E PER, with a target price of HK$6.65, corresponding to 23.0% room for growth, and reiterated the “buy” rating.
Risk warning: 1) Fluctuations in API prices may cause sales to fall short of expectations; 2) Market competition for insulin products may intensify; 3) The promotion results of the newly launched Mendon insulin may not meet expectations