Chutian Technology is a leading domestic pharmaceutical equipment manufacturer. In the short term, the COVID-19 pandemic has led to a phased imbalance between supply and demand in the global biopharmaceutical supply chain. Domestic pharmaceutical equipment companies have ushered in “import substitution & overseas layout” opportunities, and the company's on-hand orders are full. In the medium to long term, the company adheres to the strategic plan of “one vertical, one horizontal, one platform”. On the one hand, the company adheres to the strategic plan of “one vertical, one horizontal, one platform”. On the other hand, it actively lays out a forward-looking layout around the upstream biopharmaceutical consumables industry chain, which is expected to open up further long-term growth space. In summary, we gave the company 16 times PE in 2023, with a corresponding target price of 19 yuan to maintain the “buy” rating.

The company's revenue continued to grow rapidly throughout 2022 and 23Q1, and profitability was under pressure in the short term due to multiple disruptions. The company achieved operating income of 6.446 billion yuan in 2022, an increase of 22.54% over the previous year; net profit of Guimu was 567 million yuan, an increase of 0.18% over the previous year; after deducting net profit of Fugimu, 537 million yuan, an increase of 4.62% over the previous year. Looking at a single quarter, the company achieved revenue of 1,951 million yuan in 2022/Q4, an increase of 23.66% over the previous year; the net profit of the mother and net profit of the non-return mother were 105 million/86 million yuan, a year-on-year decrease of 36.58%/39.19% respectively.

——We believe that the company's profit side grew slower than revenue mainly due to: 1) As the global supply chain is tight, raw material prices rise and the global economic situation declines, trade frictions are frequent in many countries, and market competition continues to be fierce—the company's gross profit margin in 2022 was 36.05%, down 3.63 pcts year on year. Among them, the gross margin of aseptic formulation solutions and stand-alone machines fell by 2.33 pcts year on year; 2) Equity incentives for companies and subsidiaries confirmed share payments in installments - after excluding equity incentives, After deducting the company's non-net profit of 612 million yuan, an increase of 19.21% over the previous year; 3) The impact of asset impairment was the company's credit impairment loss of 1.95 million yuan in 2022 (plus credit impairment loss of 29.46 million yuan in the same period of 2021), and asset impairment losses of 36.65 million yuan (asset impairment loss of 18.25 million yuan in the same period of 2021). If this influence is excluded, we judge that the profit side will grow faster. The company's net interest rate in 2022 was 8.87%, down 2.01 pcts from the previous year - the company's sales expenses rate/management expenses rate/R&D expenses rate/financial expenses ratio in 2022 changed -0.76/-0.47/-0.48/-0.14pcts (cumulative change -1.85pcts), respectively.

——23Q1 The company achieved operating income of 1,553 million yuan, an increase of 13.49% over the previous year; net profit of Guimo was 133 million yuan, an increase of 3.86% over the previous year; after deducting net profit of 142 million yuan, an increase of 3.67% over the previous year; the company's gross margin was 34.72%, down 1.26 pcts from the previous year; and the net interest rate was 8.66%, down 0.55pct from the previous year. Considering that the company's current level of contract debt remains high (2.64 billion yuan at the end of 23Q1) and that as the global supply chain is tight, the upward pressure on raw material prices is gradually easing, and Romaco's performance is recovering, we expect the company's performance to resume steady growth throughout 2023. The company's expense rate is well controlled. Under the European energy crisis, we expect Romaco to be under pressure in the short term.

Adhering to “one vertical, one horizontal, one platform”, the bioengineering layout is beginning to show results. The company adheres to the “one vertical, one horizontal, one platform” strategy, which mainly covers eight major business segments. By business, in 2022, the company's sterile formulation solutions and stand-alone business achieved revenue of 1,892 million yuan, an increase of 48.58%; the testing and packaging solutions and stand-alone business achieved revenue of 1,776 million yuan, an increase of 10.57% over the previous year; the solid formulation solutions and stand-alone business achieved revenue of 474 million yuan, a decrease of 12.55% over the previous year; the pharmaceutical water equipment and engineering system integration business achieved revenue of 854 million yuan, an increase of 39.01% over the previous year; the EPC engineering design service business achieved revenue of 70 million yuan, a year-on-year decrease of 70 million yuan, a year-on-year decrease of 10.57%. 14.43%; the parts and after-sales service business achieved revenue of 665 million yuan, a year-on-year decrease of 22.33%, and the bioengineering solutions and stand-alone business achieved revenue of 663 million yuan, an increase of 171.25% over the previous year -- At present, the company has basically completed the industrial layout of biomedical-related fields such as disposable bioreactors, disposable liquid dispensing systems, ultrafiltration chromatography purification, stainless steel reactors and fillers. We believe that with the continuous improvement of the company's biological production line and subsequent capacity construction (23Q1) the company's fixed assets were 1,682 million yuan, an increase of about 30 percent over the previous year %, 323 million yuan of projects under construction, an increase of about 52% over the previous year), which will provide strong support for the growth of the company's bioengineering business.

By region, the company's domestic business achieved revenue of 48.20 yuan, an increase of 39.44% over the previous year; the overseas business achieved revenue of 1,626 billion yuan, a decrease of 9.57% from the previous year. The decline in the company's overseas revenue was mainly due to the impact of the Russian-Ukrainian war, multinational trade frictions, and global supply chain tension, and the performance of Romaco was pressured - Romaco's revenue in 2022 was 191 million euros, a year-on-year decrease of 4.97%, and net profit of 5.38 million euros, a year-on-year decrease of 50.65% (as of the end of 2022) Romaco's contract debt was 35.31 million euros, an increase of 38.80% over the previous year, indicating a steady increase in new orders and active orders). After excluding Romaco (based on the EUR/RMB exchange rate = 1:7.35), we expect the company's revenue in 2022 to be 5043 million yuan, an increase of 33.27% over the previous year; net profit of 528 million yuan, an increase of 8.56% over the previous year.

It is proposed to increase capital and expand production to help development, demonstrating confidence and high certainty in medium- to long-term development. In February 2023, the company announced a plan to issue convertible corporate bonds to unspecified targets. It intends to raise no more than 1.1 billion yuan. The net amount of capital raised after deducting the relevant issuance expenses is to be invested in the following projects: 1) the first phase of the bioengineering construction project, which plans to use the capital raised 630 million yuan; 2) the medical equipment and materials technology research center project, to raise 250 million yuan of capital; 3) to supplement working capital, to use 220 million yuan of capital raised. We believe that the implementation of this proposed fund-raising investment project will help the company improve the upstream and downstream layout of the industrial chain, strengthen supply chain management, complement upstream precision processing supply enterprises, and improve the company's industrial layout in biomedical-related fields. In addition, in the short term, many of the company's financial indicators have continued to increase, indicating strong certainty that its performance will grow in 2023 — at the end of 2022, contract liabilities (advance payments) were 2,875 million yuan, an increase of 8.03% over the previous year; fixed assets amounted to 1,709 million yuan, an increase of 29.80% over the previous year; and projects under construction were 205 million yuan, an increase of 68.56% over the previous year. We determined that the continued growth in contract liabilities, fixed assets, and projects under construction further reflected the company's plentiful orders on hand and the high certainty of business growth over the next 2-3 quarters.

Risk factors: Risk of Romaco's consolidation falling short of expectations; risk of order growth falling short of expectations; risk of domestic substitution falling short of expectations; risk of rising raw material costs.

Profit forecasting, valuation and ratings: Chutian Technology is a leading domestic pharmaceutical equipment manufacturer. In the short term, the COVID-19 pandemic has led to a phased imbalance between supply and demand in the global biopharmaceutical supply chain. Domestic pharmaceutical equipment companies have ushered in a “import substitution & overseas layout” opportunity, and the company is full of orders. In the medium to long term, the company adheres to the strategic plan of “one vertical and one horizontal platform”. On the other hand, it actively focuses on the “one vertical and one horizontal platform” strategic planning through mergers and acquisitions of enterprises with unique business advantages and competitive strength, supplement processing and back-end packaging equipment capabilities. On the other hand, it actively focuses on the forward-looking supply chain of the biopharmaceutical upstream consumables industry The layout is expected to be further Open up room for long-term growth. In summary, considering the tight global supply chain and rising raw material prices, we adjusted the company's 2023/24 EPS forecast to be 1.20/1.47 yuan respectively (the original forecast was 1.44/1.76 yuan), the current price corresponding PE was 13x/11x respectively, the new 2025 EPS forecast was 1.82 yuan, and the current price corresponding PE was 9x. Referring to comparable companies (Dongfulong, Tailin Biology, Morimatsu International, Xinhua Medical, etc.), Wind agreed to expect an average PE of 20 times in 2023. Considering that the company's future net profit growth rate is slightly slower than the average growth rate of comparable companies, the company was given 16 times PE in 2023. The corresponding target price was 19 yuan, maintaining the “buy” rating.