Incident: Recently, the company released its 2022 annual report, which achieved annual revenue of 7.159 billion yuan (yoy +12.48%); net profit of 727 million yuan (yoy +201.96%); net profit of non-return mother was 748 million yuan (yoy +730.34%).

Comment:

(1) The high growth rate of net profit is due to the low profit base in 2021, while the main business of heparin preparations and CDMO grew rapidly

The 730% increase in net profit after deducting non-return to the mother in 2022 was due to the low profit base in 2021 due to investment income, income from changes in fair value, asset impairment related to investment projects, and structured exchange gains and losses after tax. Excluding the above factors, net profit returned to the mother in 2021 was 557 million yuan, and the year-on-year growth rate in 2022 was 30.47%.

(2) Global sales of enoxaparin preparations exceeded 200 million units, and sales increased 22% year on year 2022, the company's pharmaceutical business revenue was 3.21 billion, up 21.7% year on year, making it the largest revenue contribution, accounting for 44.84%. The global sales volume of enoxaparin preparations exceeded 200 million units (YOY +22.31%), which has been registered in more than 60 countries and sold in more than 40 countries. Among them ① European sales increased by about 20% year-on-year, and market share was steady in second place; ② US sales increased by more than 100% (supplied in cooperation with Sandez). In March 2023, Tiandao Pharmaceutical, a subsidiary of the company, received an ANDA approval notice for enoxaparin sodium injection issued by the FDA, which means that Hepry's enoxaparin sodium preparations can be sold in the US market by its own sales team. Further increase share; ③ China's sales increased by more than 60% to prepare for national collection; ④ Sales in non-European and American overseas markets were basically the same as last year, and are in the inventory removal stage.

The company's formulation line construction project in Pingshan Park has officially started. The first phase of the project's production capacity construction target is 360 million units/year, including three pre-filled filling filling production lines, four packaging lines and an intelligent three-dimensional warehouse. Delivery is expected to be completed in 2024, and commercial batch production will be achieved in 2025.

In 2022, the company's heparin API business revenue was $2,674 million, a year-on-year decrease of 1.76%, and gross margin increased 1.1 pp to 27.7% year over year.

(3) CDMO business revenue exceeded 1 billion yuan, a year-on-year increase of 33%. The revenue of CDMO's business in 2022 was 1,084 billion yuan, an increase of 33.3% over the previous year, and gross margin increased to 38.49%. The gross margin of Saiwan Biotech's service-oriented revenue remained above 40%.

At the same time, Saiwan Biotech collaborated with Avantor to provide biomedical customers with plasmid production services that meet US cGMP standards and GMP grade plasmid products.

(4) The 5 indications in the innovative drug pipeline are in the global phase III clinical stage. The company owns more than 20 first-of-its-kind drugs, covering more than 30 indications. Of these, 5 indications have been developed in the global phase III clinical stage. ① AR-301 combined with standard antibiotic therapy to treat patients with ventilator-associated pneumonia (VAP) caused by Staphylococcus aureus is currently in phase III clinical trials worldwide. By the end of 2022, 174 patients had been enrolled. ② By the end of 2022, the international multi-center phase III clinical trial of Oregovomab combined with chemotherapy for advanced primary ovarian cancer had enrolled more than 534 subjects. ③ RVX-208 combined with standard therapy, including high-intensity statins, is used for secondary prevention of major adverse cardiovascular events in type 2 diabetics who have recently developed acute coronary syndrome. It was approved as a breakthrough treatment by the US FDA, and the critical phase III clinical plan was once again approved by the US FDA.

Profit forecast: According to the company's business growth, we expect the company's net profit to be 853 million yuan, 1,002 billion yuan and 1.25 billion yuan respectively in 2023-2025. The corresponding EPS will be 0.58 yuan, 0.68 yuan and 0.85 yuan respectively, and the corresponding PE will be 24, 20 and 16 times respectively, maintaining the company's “highly recommended” investment rating.

Risk warning: Market penetration falls short of expectations; domestic and foreign market promotion is limited; risk of R&D failure for ongoing research projects.