Main points of investment

Investment suggestion

We believe that Luoxin Pharmaceutical, as a comprehensive generic drug company with leading use of digestive tract drugs, leading in respiratory field and collaborative imitation and innovation, is expected to contribute to the performance of the new drug LXI-15028 from 2022, partly hedging the possible performance impact of collection. In the past three years, the company has carried out diversified cooperation in products, production capacity and channels, the fundamentals have improved upward, and the sustainability of performance growth and room for development are expected to exceed expectations, giving a "overweight" rating for the first time.

Market perception divergence: after the stock set is collected, when can the increment come?

Market perception: ① has increment and innovation, but there are differences on the sales space of new varieties; the large stock varieties in the digestive tract field of ② (such as lansoprazole for injection) have verified the company's sales ability in the department of gastroenterology, but it is difficult to grasp the risk of stock varieties flow standard and price reduction under the background of collection and collection.

The focus of poor expectation lies in whether the increment of innovative varieties can fill the gap after the collection of stock varieties, and what changes will be brought to the company in the medium and long term by exploring the cooperation model of products, production capacity and channels outside the innovative drug business.

Our cognitive ①: the theoretical space of P-CAB varieties can be more optimistic that the potential medication space for digestive tract ulcers and gastroesophageal reflux disease in China is large (estimated at 1000-150 billion yuan), the drug structure continues to improve (from PPI to P-CAB), and P-CAB has enough room for increment. With reference to the rapid volume release of Japanese P-CAB Wonolazan after its listing, we expect the ceiling of the domestic P-CAB market to be higher.

Our cognitive ②: sub-variety quantitative collection risk & opportunity, not Price-in is the catalyst, we suggest that combined with variety specific analysis: lansoprazole for injection collection may indeed have performance pressure, but from the perspective of competition pattern and quantity-price relationship, varieties such as esmeprazole sodium for injection and rabeprazole sodium for injection may bring performance increment and partially hedge the negative effects of other varieties.

Which risks have been identified by Price-in we believe that the current valuation (PE-TTM is about 25 times) already reflects the impact of collection expectations on performance growth in 2021-2022.

We believe that the fundamentals of the company have entered a transitional and upward stage (performance persistence expectations, innovative drug pipeline value and long-term development potential of Chengdu inhalation preparation business should be paid more attention to).

Our cognitive ③: performance growth persistence and long-term space, 2021-2022 is a new starting point, LXI-15028 is expected to contribute performance from 2022, and some of the negative effects of hedging collection may be brought. From 2021 to 2022, the company's main varieties have entered the national collection one after another, since then generic drug varieties are expected to enter a steady growth channel. With the climbing of LXI-15028 sales, the smooth progress of the third clinical phase of procanaptide and the continuous development of cooperative introduction projects, the company's income structure and product portfolio are expected to be adjusted again, standing at the new starting point of imitation and upgrading.

Profit forecast and valuation

We expect the company's EPS to be 0.45,0.52 and 0.61 yuan per share respectively from 2020 to 2022, and the closing price on October 27, 2020 corresponds to 28 times PE in 2020, slightly higher than the average PE valuation of comparable companies. We combine the relative valuation method and the DCF method to evaluate the stock PPI varieties and innovative drug varieties, with a target market value of 20-26 billion yuan: with reference to the valuation of comparable companies, the stock generic drug business is given 25-30 times PE;DCF method, the LXI-15028 in 2020 contains only EE and NERD indications, and the current value is 40-5 billion; conservatively estimated that the discounted value of procanaptide is 5-1 billion In addition, taking into account the company's innovative drug pipeline in the anti-tumor field, Chengdu inhalation preparation business promotion and product expansion space, the "overweight" rating was given for the first time.

Catalyst

New progress has been made in the clinical and marketing of innovative drugs; the company has cooperated to introduce new products to contribute to the performance increment; the price decline of the winning bid is relatively low.

Risk hint

The risk of collection standard; the risk of excessive decline in collection prices of major varieties; the risk of R & D / clinical failure of major innovative drugs; the risk of plant construction and customer audit speed being lower than expected.