2022 core results are in line with our expectations
The company announced its 2022 results: revenue of 6.319 billion yuan, an increase of 26.4% over the previous year; the net profit of the mother was 933 million yuan, a decrease of 38.1% over the previous year. Mainly due to the decline in the fair value of the investments held and the one-time income generated by the sale of assets during the same period last year, we estimated the core net profit of 690 million yuan after deducting the one-time impact, an increase of 68% over the previous year. The core performance was in line with our expectations.
Development trends
Overall performance in 2022 was solid. The company's total revenue was 6.319 billion yuan, of which the innovative drug business revenue was 4.128 billion yuan, accounting for 65.3% of the total revenue. Classification by treatment field: 1) Revenue from the neurological sector was 2,267 billion yuan, an increase of 41.0% over the previous year. 2) Revenue from the oncology sector was 1,430 billion yuan, an increase of 15.5% over the previous year. 3) Revenue from the field of autoimmunity was 1,280 million yuan, an increase of 39.4% over the previous year. The company said that its core products must have seen a 41% year-on-year increase in revenue in 2022, covering 47% of hospitals across the country. It is expected that 1,200 new hospitals will be added in 2023, with a coverage rate of around 70%. Management said that Nvida (the only PD-L1 injected subcutaneously) 2H22 revenue increased 60% month-on-month, and 1Q23 also showed a rapid growth trend.
Management expects mature products to perform steadily in the future, and innovative products such as Xinxin, Cosella, and Envida will continue to gain strength (the company expects innovative drugs to account for 70% of revenue in 2023), so that the company's overall revenue growth can be maintained in the future.
The innovation pipeline continues to be implemented. Since 2022, the company's first domestically produced 3CL COVID-19 small molecule drug, sennoxine (as of 1Q23, it has covered hospitals in 31 provinces, entered 2,000 hospitals, and has a production capacity of 4 million servings/month), and Cosella for bone marrow protection for small cell lung cancer chemotherapy have been approved successively. Furthermore, in 2022, the company accumulated 2,600 clinical enrollment cases, completed 7 clinical trials, and 6 innovators were approved for IND. The company expects 1H23 to submit a listing application for a new sublingual tablet, and phase 1 clinical trial of this product will also commence in the US. The company also granted its self-developed SIM0278 overseas benefits to Almirall, receiving a $15 million down payment and up to $492 million in milestone payments. The company said that a total of 11 innovators are carrying out 17 clinical studies in the field of oncology; in early clinical terms, 5 self-developed innovators, including SIM0235, have entered the clinical phase 1 dose climbing stage. Research and development of various innovative drugs for neurology, self-immunity, and anti-infection is also progressing smoothly.
Profit forecasting and valuation
Considering that the company continues to increase investment in R&D, we lowered the 2023 core net profit forecast by 24% to 830 million yuan, and introduced the 2024 core net profit forecast of 1,029 million yuan. The current stock price corresponds to the 2023/24 core price-earnings ratio of 22/17 times. Based on optimism about the company's innovation pipeline, we maintain an outperforming industry rating and target price of HK$11.96, corresponding to the 2023/24 price-earnings ratio of 32/25 times, with room for 46% increase from the current stock price.
risks
The reduction in procurement prices exceeded expectations, the competitive pattern worsened, R&D failed, and internationalization fell short of expectations.