Report guide

Driven by COVID-19 vaccine sales at home and abroad, the company made a substantial turnround in 2021. We believe that 2022 is the transitional period for the company to build a commercial vaccine platform. With the decline in COVID-19 's contribution to vaccine profits and the increase in the share of MCV2 and MCV4, profit volatility is expected to decrease significantly from 2023.

Main points of investment

Financial performance: substantial turnaround compared with the same period last year, accelerated R & D and investment

On March 27, 2022, the company released its 2021 annual report, with operating income of 4.3 billion yuan, an increase of 17175% over the same period last year; net profit of 1.91 billion yuan, and net profit of 1.8 billion yuan after deducting non-return, turning losses into profits. In terms of operating cash flow, the net cash flow generated by the company's operating activities in 2022 was 2.05 billion yuan, and the cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets was 1.2 billion yuan, a substantial increase compared with the same period in 2020. In a single quarter, 2021Q4 revenue was 1.21 billion yuan, an increase of 18.5% month-on-month. 2021Q4 net profit was 580 million yuan, an increase of 46.3% over the previous month. We believe that the company's revenue and profit growth in 2021 is in line with our expectations.

Growth driven: driven by COVID-19 vaccine, the new momentum of MCV2 and MCV4 in 2022-2023 reflects sub-regional perspective. In 2021, the company's foreign income was 3.06 billion yuan, an increase of 48074% over the same period last year. According to the company's annual report, the increase in foreign revenue "is mainly due to the supply of COVID-19 vaccine to Mexico, Pakistan and other overseas countries during the reporting period." Domestic income was 1.24 billion yuan, an increase of 6600.7% over the same period last year. Group C meningococcal polysaccharide conjugate vaccine (group C meningococcal polysaccharide conjugate vaccine (CRM197 carrier)) obtained the Drug Registration Certificate issued by the Drug Administration in June 2021. Considering the time of the company's production, batch issuance and sales channel promotion, we expect that the company's domestic sales growth in 2021 will mainly come from COVID-19 vaccine sales. Looking forward to 2022, we will look at it at home and abroad:

① abroad: according to COVID-19 Vaccine Tracker and company announcement, the company has approved COVID-19 vaccine in Indonesia, Malaysia and other countries, in which the company has been approved to strengthen the vaccine in Malaysia, Indonesia (vaccination rate of about 55%), Pakistan (vaccination rate of about 45%), Kyrgyzstan (vaccination rate of about 18%) there is still room to increase the vaccination rate. However, according to the estimates of Duke and other institutions, the global COVID-19 vaccine production capacity will be released rapidly from 2022: by the end of January 2022, it is estimated that the global 17 COVID-19 vaccine suppliers will produce about 109.7 billion doses in 2021 and 233.8 billion doses in 2022. Although 14.5% of the low-income countries in the world have not yet been vaccinated against COVID-19, taking into account the fierce competition at the supply side and the high variability of novel coronavirus, from a cautious point of view, we lowered our forecast for the company's export sales of COVID-19 vaccine in 2022, mainly based on (1) potential price reduction risks, (2) high initial immunization in approved countries and uncertain demand for enhanced injections.

② domestic: for COVID-19 vaccine, according to the information at the press conference of the Joint Prevention and Control Mechanism of the State Council on April 1, 2022, "as of March 31, a total of 3.2 billion 7087.4 doses of COVID-19 vaccine have been reported nationwide, with a total number of 1.2 billion 77.709 million, and 1.2 billion 42.281 million people have been vaccinated throughout the process, accounting for 90.63% of the country's total population and 88.11% of the country's total population. Enhanced immunization was completed for 600 94.936 million people, of which 17.344 million were sequentially enhanced. The number of people over the age of 60 covered by vaccination reached 200 23.708 million, the whole course of vaccination was 200 million, and the enhanced vaccination was 100 million. " According to the latest statistics, the national enhanced vaccination rate is higher than we expected, but the number of sequential enhanced vaccination is lower than we expected. We believe that although heterologous enhancement provides a safer and effective vaccination option from the perspective of clinical data, however, heterologous enhancement relies more on market promotion and publicity than homologous enhancement, and climbing may be slower, so we lowered our forecast for the company's domestic COVID-19 vaccine sales in 2022. For MCV2 and MCV4, according to the company's website and data from the Central people's Procuratorate, the company has had approved issuance of MCV2 since September 2021, and we expect MCV4 to support revenue growth from the second half of 2022.

Profitability: the net profit from 2022 to 2023 is expected to decline first and then rise. In 2021, the company's comprehensive gross profit margin is 69.9%, and the net profit margin is 44.4%. According to the structure of the period expense rate, the sales expense rate is 2.5%, and the R & D expense rate is 20.4%. We believe that, compared with comparable companies, CANSINOBIO's sales expense rate and gross profit margin are relatively low, which we think is related to the company's COVID-19 vaccine revenue. Looking forward to 2022, from the gross profit margin, considering the potential price reduction risk of COVID-19 vaccine, we expect the gross profit margin of COVID-19 vaccine to decline, while the gross profit margins of MCV2 and MCV4 are relatively high, we expect that with the increase in the share of MCV2 and MCV4 revenue, the company's gross profit margin may decline first and then increase in 2022-2024; at the same time, we expect the sales expense rate to increase. According to the 2021 annual report, the company's clinical vaccine varieties include inhaled Ad5-nCoV COVID-19 vaccine, DTcP pertussis tetanus vaccine combination, PBPV pneumonia protein vaccine, PCV13i pneumonia conjugate vaccine, TB- tuberculosis enhanced vaccine, etc., among which "the company's PCV13i belongs to non-first-class biological products and entered phase Ⅲ clinical trials in April 2021, which has met the relevant conditions for R & D cost capitalization". We expect that with the promotion of the company's R & D pipeline in 2022, the company's R & D expenditure rate will increase, which will lead to a decline in the company's net interest rate in 2022.

Viewpoint: during the transition period of building a commercial platform, the change from 1 to N is more worthy of expectation. We believe that 2021 is the inflection point for the company to build a commercial vaccine platform, and the rapid growth of fixed assets and projects under construction in 2021 shows that the company is in a transition period from Biotech to Biopharma. With the gradual maturity of the company's production organization capacity and commercial operation and maintenance team, pipeline promotion and revenue growth are expected to gradually enter the fast lane. Under the principle of prudence, we have lowered our profit forecast for 2022, but we are also concerned about the important changes of the company in 2022: new progress is expected to be made in WHO PQ certification, commercialization capabilities of MCV2 and MCV4 are built and strengthened under the expansion of the sales team, and the mRNA technology platform is expected to be continuously improved and verified. Looking forward to 2023, we expect that with the further decline in COVID-19 's share of vaccine revenue, the company's overall profit volatility is expected to decline and gradually become a pioneer of innovative vaccines with leading technological capabilities and rich product lines.

Profit forecast and valuation

Based on the above analysis, we downgrade the company's profit forecast for 2022-2023. it is estimated that the company's EPS in 2022-2024 will be 1.48,2.63,3.65 yuan per share respectively, and the closing price on April 1, 2022 corresponds to 159 times PE in 2022. We believe that 2022 is the transitional period for the construction and verification of the company's commercial platform. As the company's MCV2 and MCV4 revenue share increases and COVID-19 vaccine revenue share decreases, the company's earnings volatility is expected to decrease. In the medium and long term, we are optimistic about the company's technical advantages in protein structure design and adenovirus vector platform, and we are optimistic that the company will take advantage of the opportunity of COVID-19 vaccine commercialization to rapidly promote the construction of sales team and international R & D cooperation, and maintain the "overweight" rating.

Risk hint

Risk of failure in clinical research and development of vaccine, repeated risk of COVID-19 epidemic, risk of change in domestic vaccine procurement policy, risk of lower-than-expected production capacity release.