Incident: The company released its 2022 annual report, achieving operating income of 1.45 billion yuan, an increase of 11.9% over the previous year; achieving net profit attributable to shareholders of the parent company of 600 million yuan, a decrease of 27.9% over the previous year; and achieved net profit of 550 million yuan after deduction, a decrease of 1.8% over the previous year.

Human diploid fever has been growing steadily throughout the year, and Q4 declined due to the impact of the epidemic. On a quarterly basis, the company's revenue for the single quarter of 2022 Q1/Q2/Q3/Q4 was 2.7/3.9/4/39 billion (+12.5%/+24.8%/+73.3%/-23.5%), and the net profit achieved to the mother was 1.4/1.8/17/120 million yuan (+34.6%/+18.9%/-49.4%/-49.4%/-53.4%), respectively. The large year-on-year decline in the company's revenue and profit in Q4 was mainly due to the impact of the post-liberalization epidemic. The decline in Guimu's net profit growth rate was mainly due to the high fair value earnings of the company's participating companies in the same period last year, and there was a high base. In terms of profitability, the company's gross margin in 2022 was 93.6% (+0.04 pp) and net interest rate was 41.3% (-22.8 pp), mainly due to the high profit base caused by the above changes in fair value. The sales expense rate was 29.6% (-2.3 pp), and the management fee rate was 5.7% (-1 pp), mainly due to the impact of the pandemic on the company's sales promotion activities. The R&D cost rate is 12.4% (+6.3pp), mainly due to the company's increased investment in research pipelines.

The production capacity of human diploids is gradually being released. By product, the revenue of human diploid vaccines in 2022 was 1.42 billion yuan (+12.7%), accounting for 97.8%, and the ACYW135 meningitis polysaccharide vaccine was 17 million yuan (-37.8%). Judging from batch issuance data, the company issued 8.09 million bottles in batches in 2022, an increase of 69% over the previous year. At present, the company's design production capacity has reached 5 million units, and the actual production capacity is estimated to be around 7 million units. As the production capacity of fund-raising projects is put into operation around 2023-2024, the overall production capacity will increase to 11 million units/year, which is conducive to the continuous release of the company's products.

The pet vaccine brought the company a new growth point. The pet vaccine products that the company collaborated with Hangzhou Youben have now been submitted and distributed in batches, with sales revenue of 3.8 million yuan in 2023. Currently, many pet hospitals across the country have signed up to order the company's veterinary vaccine products. The current number of pets in China is around 100 million, which is expected to increase at a rate of 7%. Currently, the domestic market is still dominated by vaccines from overseas manufacturers, and the company is expected to rapidly expand its market share through product quality advantages and cost performance advantages.

Profit forecasts and investment recommendations. Net profit of Fumo is estimated to be $840 million, $1.21 billion and $1.31 billion respectively in 2023-2025. The net profit of Fumo will be 30% CAGR for the next three years, maintaining the “buy” rating.

Risk warning: The pace of new production capacity for the human diploid cell rabies vaccine falls short of expectations; the company's inventory is insufficient to meet the risk of seasonal fluctuations in sales; the risk of a single product structure.