Incidents:
Recently, the company announced its full-year results announcement for 2022, achieving revenue of RMB 2,181 million in 2022, down 28.21% from the same period in '21; net loss of 2,283 billion yuan for the whole year; and invested 937 million yuan in R&D, accounting for 42.94% of total revenue.
Comment:
Continue to increase investment in R&D to promote transformation and development
Affected by the domestic epidemic and changes in pharmaceutical industry policies, the company's revenue from continuing operations in 2022 was RMB 2,181 million, a year-on-year decrease of 28.21%. The gross profit from continuing operations during the year was 1,488 million yuan, a year-on-year decrease of 38.79%. In 2022, Sihuan Pharmaceutical vigorously increased R&D investment, built more than 100 medical, aesthetic and biopharmaceutical product pipelines, and gradually achieved value expansion by rapidly promoting the R&D progress of product pipelines and accelerating the pace of industrialization. The company's total R&D expenditure in 2022 was about 937 million yuan, an increase of about 68.5 million yuan compared to R&D expenditure in the same period in 2021. Meanwhile, the generic pharmaceuticals and medical and aesthetic sectors continued to achieve net operating cash inflows. The amount of cash and equivalents maintained by the company at the end of the year was RMB 4.792 billion.
Beauty Space is poised to establish a leading integrated platform for medical and aesthetic research, production and marketing. The medical and aesthetic sector has revenue of 150 million yuan and operating profit of 3.60 million yuan in 2022. It is rich in variety and comprehensive development. The injectable A botulinum toxin Letybo 100U (trade name: Letibo), represented in the medical and aesthetic field by Si Huan Pharmaceutical's medical and aesthetic platform, was officially marketed and sold in February 2021, contributing to the domestic botulinum toxin market. Through self-research and cooperation with domestic and foreign technology companies, the company has created an industry-leading “injection+optoelectronic+device+drug+injection” medical and aesthetic life cycle product matrix. Currently, there are more than ten Class III medical device products developed in-house, such as “children's face needles” and “young girl needles”. The company is also actively promoting business development with partners, such as officially representing the marketing of popular Korean gold microneedles and platinum anrun hyaluronic acid, and establishing a joint venture with Beijing Blue Crystal Microbiology to jointly develop PHA microspheres and regenerative medicine materials based on biological manufacturing. Recently, the company also completed the acquisition of Yimei Medical Technology and entered the field of optoelectronic medicine and aesthetics. Sihuan Pharmaceutical's comprehensive layout in the field of medical and aesthetic segmentation, and the launch of more products in the future will further enhance product synergies and help improve the company's performance.
Innovative drugs and biopharmaceuticals take a two-pronged approach to comprehensively promote innovation and transformation
In 2022, R&D expenses for innovative drugs and other business segments were 937 million yuan, generic drug revenue was 1,971 million yuan, and operating losses were 16.00 million yuan. The two innovative drug companies under Sihuan Pharmaceutical are Xuanzhu Biology and Huisheng Biology, which focus on innovative drugs in the fields of tumors, metabolic diseases, infections, etc. Xuanzhu Biotech has established an independent research and development platform for China's leading innovative drugs with the most complete pipeline on the domestic breast cancer circuit, and completed two rounds of financing of about RMB 1,570 million A and B in mid-2022, with a post-investment valuation of about 7 billion yuan. Huisheng Biotech is one of the few biomedical leaders to achieve full product coverage in the field of diabetes and complications. In 2022, Huisheng Biotech completed two rounds of financing of about RMB 1.08 billion A and B, with a post-investment valuation of RMB 5.58 billion. Currently, Sihuan Pharmaceutical has 50+ generic drugs on sale and has plenty of cash flow. Although Xuanzhu Biotech's initial listing application on the Shanghai Stock Exchange has been suspended and “commercialization” efforts still need to be strengthened, considering that innovative drugs have broad room for appreciation in the future market, Sihuan Pharmaceutical has achieved a leading position in various segments.
Profit forecast and investment rating: We expect sales revenue and net profit from the medical and aesthetic business to grow rapidly. Non-key monitoring catalogue products will be affected by the policy. The forecast for the next 3 years is estimated to be 19.91/24.01/3.605 billion yuan respectively (the pre-2023/2024 values were 47.34/5.755 billion yuan respectively). The reason for the reduction was the tightening of pharmaceutical and aesthetic industry policies and product development and business transformation expenses. The adjusted net profit was -4.33/-1.82/1.11, respectively. RMB 100 million (values before 2023/2024 were 1,088/1,350 million yuan respectively), downgraded to the “increase in holdings” rating.
Risk warning: Product sales fall short of expectations, risk of volume procurement not winning bids, risk of market fluctuations.