Sinopharm Hyundai issued an announcement: The company released a report for the first quarter of 2023, achieving revenue of 3.417 billion yuan, an increase of 5.33% over the previous year; Guimu's net profit of 179 million yuan, an increase of 130.87% over the previous year; after deducting non-Gumo's net profit of 171 million yuan, an increase of 157.99% over the previous year.

Key points of investment

Revenue was corrected in the first quarter, and operating efficiency continued to be optimized

Operating revenue in the first quarter increased 5.33% year-on-year. Compared with 2022, the growth rate was corrected. Some key APIs and pharmaceutical varieties all contributed positively. Among them, the resumption of work by API subsidiaries had a great impact on profits. Wichida lost 148 million yuan in the first half of 2022 due to the shutdown of 6-APA last year due to the shutdown of 6-APA, the operating rate decreased, and the cost of going public. Currently, 6-APA and downstream have recovered, and 6-APA prices have remained stable. It is expected that Wichida will continue to reverse losses in the first half of the year. In terms of improving quality and efficiency, the cost rate for the three items fell 5.45 percentage points year-on-year in the first quarter, which led to rapid profit growth.

The influence of harvesting is gradually biased towards positive, opening up an integrated industrial chain

In 2022, a total of 8 varieties of the company participated and were selected for the 7th batch of centralized national drug procurement, including the core variety of nifedipine controlled-release tablets, a decrease of about 85%. So far, the company's core products have basically been collected. In the 8th batch of collection, which ended at the end of March, the company also won the bid for 2 varieties. Among them, the winning price of injectable cefotaxime sodium was basically the same as the original local average bid price. The increase in sales volume after official execution will lead to an increase in profits. As the variety collected increases in the future, the company may shift to incremental volume. In 2022, the company implemented a total of 134 product regulations for new product development projects, and 15 product regulations submitted listing applications. New generic drug varieties are being developed, and the company is also simultaneously developing APIs to achieve integration from APIs to formulations and lay the foundation for long-term competition.

Major shareholders will increase their support to strengthen the chemical pharmaceutical platform

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, and has industrial platform advantages. According to the “China Pharmaceutical Industry Top 100 Series List” sponsored by the Chinese medical and health information platform Mine.com, the company ranked 12th in the “2021 Chinese Pharmaceutical TOP100 Ranking”. In order to support the company's development and continuously enhance the company's industrial status, Sinopharm Group provided 1,187 million yuan of financial support to the company through fixed increases. The capital raised has now been put in place.

Profit forecasting

We forecast the company's 2023E-2025E revenue to be 136.92, 14321, and 15.165 billion yuan respectively, net profit of 721, 805 and 887 million yuan respectively, and EPS of 0.62, 0.69, and 0.76 yuan respectively. The current stock price corresponding to PE is 22.2, 19.9, and 18.1 times, respectively, giving a “buy” investment rating.

Risk warning

Risks such as uncertainty in collection, fluctuations in API prices, and asset consolidation falling short of expectations.