Looking ahead to the removal of adverse factors in 2023, performance is expected to return to the upward channel: in 2022, the company achieved revenue of 12.959 billion yuan (-7.07%), net profit of 628 million yuan (+10.47%), and net profit of 553 million yuan (+11.17%) after deducting non-return to the mother. By sector, the company's API and intermediates sector achieved sales of 5.122 billion yuan (-8.31%), and the pharmaceutical sector achieved sales of 7.533 billion yuan (-5.77%). The decline in the company's sales was mainly due to poor logistics at home and abroad in 2022, increased competition in the API market, and fluctuations in terminal pharmacy demand. It is expected that terminal demand and logistics will return to normal in 2023, adverse factors will gradually be lifted, and performance is expected to return to the upward channel.

Variety potential continues to be unleashed, and R&D investment helped subsequent growth: the company strengthened procurement and bidding collaboration, and in 2022, 8 varieties successfully won the bid for the seventh batch of centralized national drug procurement; the large variety strategy continued to develop, the number of products over 100 million yuan rose year by year, and the number of products (series) of over 100 million yuan in 2022 increased to 31. In addition, the company's consistency evaluation was approved at an accelerated pace. In 2022, a total of 19 product regulations were passed/treated as having passed the consistency evaluation, and the total number of reviewed products increased to 47 product standards. Among them, the antidepressant minapron hydrochloride tablets and the antitumor drug cytarabine for injection were the first to be evaluated in China.

Sinopharm Group, the majority shareholder, participated in the fixed increase, and its industrial platform advantage was further strengthened: the company targeted 145 million additional shares at 827 yuan/share in January 2023, and Sinopharm Group, the company's indirect controlling shareholder, subscribed for all additional shares. The company belongs to Sinopharm Group, the largest “central enterprise medical and health industry platform” in China. It is positioned as a unified chemical industry platform under Sinopharm Group. It has industrial platform advantages, and the industrial platform advantage was further strengthened after the launch was completed: on the one hand, through comprehensive collaboration in the industrial chain, building core competitiveness with excellent product quality and cost advantages, and strives to become a leading enterprise in the domestic chemical pharmaceutical field; on the other hand, it actively seeks to lay out biopharmaceuticals and big health fields to achieve leapfrog development.

Investment advice: We expect the company to achieve revenue of 145592/163.14/18,141 billion yuan in 2023-2025, and net profit of 722/843/996 million yuan. The corresponding PE was 20.1/17.2/14.7 times, respectively. It was covered for the first time and gave an “increase in holdings” rating.

Risk warning: risk of price reduction in collection, increased risk of overseas competition for APIs, sales falling short of expectations