Main points of investment

The company disclosed its results in 2021, with annual income of 3.3 billion yuan (+ 33.6%), net profit of 420 million yuan (- 12%), steady and high increase in income, increased investment in new drugs and related costs caused by the proposed listing of Xuanzhu Bio, and other factors affecting short-term profits. research and development investment to promote the company to further transform medical and aesthetic innovation drug two-wheel drive.

H2 income 1.38 billion yuan (- 2%), return to the mother-200 million yuan (- 160%).

Income split: high growth of botulism-catalyzed medical beauty

① botulism led to the explosive growth of medical and beauty income. Medical and beauty plate income 399 million (+ 1383.3%), of which H2 income 1. 4.1 billion, mainly from Letibao sales, 2021 company Letibao sales of more than 370000 bottles.

② generics gradually get rid of the influence of key monitoring catalogs and look forward to Klinao's return to health insurance. Generic drug revenue is 2.598 billion (+ 18.2%), of which H2 revenue is 1.088 billion (- 16.2%). The generic drug business is gradually getting rid of the influence of key monitoring catalogs, sales growth is steady, and H2 prices have dropped slightly due to the influence of volume procurement. Klingao is expected to return to health insurance and lead to a substantial rebound in sales in the future.

③ innovative drugs and other (currently mainly CDMO) revenue is 294 million (+ 23%), of which H2 revenue is 15.467 billion (+ 36.4%). During the reporting period, the company received large orders for APIs / intermediates, and long-term innovative drugs will become the core driver.

Profit split: increased investment in innovative drug sector

The annual gross profit margin is 74.4% (- 3.3pct), of which H2 gross profit margin is 71% (- 9%). The decline in gross profit margin is mainly due to a slight drop in selling prices due to concentrated volume procurement.

Expense rate: the sales expense rate is 16.6% (+ 1.6pct), the management expense rate is 18.5% (- 1.4pct), the financial expense rate is 3.6% (+ 3.3pct), and the R & D expense rate is 26.4% (- 3pct). The short-term fluctuation of expense rate is mainly due to the impact of short-term cost investment caused by the proposed listing of Xuanzhu Bio.

The net interest rate for the whole year is 12.7% (- 6.6pct), of which the H2 loss rate is-14% (- 37pct). The decline in the company's net interest rate is mainly related to the loss caused by the acquisition of Kangming Baiao, the asset impairment of innovative drugs and other drugs and the related expenses caused by the proposed listing of Xuanzhu Bio. Sub-business profits: medical and beauty operating profit of 249 million (+ 919%), generics operating profit of 1.332 billion (- 3.7%), innovative drugs and other (API and CDMO) operating losses of 797 million (+ 69.7%), medical and beauty business profits are bright, innovative drug sector is in the period of increasing investment.

Business highlights and prospects:

① botulism is expected to continue its volume: as a scarce approved botulinum toxin product, Letibao, which focuses on differentiated price bands and high performance-to-price ratio, is expected to enjoy the dividend of young, light and extravagant medical and American consumer market growth, and is expected to accelerate its occupation of the market in the future. It is predicted that Letibao will sell 50-600000 units in 2022, with a sales revenue growth rate of more than 30 per cent.

② complete medical product matrix first appearance: the company has a complete layout of medical products pipeline, including hyaluronic acid, regeneration, gold microneedle, catgut embedding, fat reduction, dressings, etc., in which Dema hyaluronic acid acting Hugel predicts that Q2 will be approved, and then will form a combination plan with botulinum; Tong Yan coagulation is advancing rapidly, in addition to the exclusive agent of Switzerland Suisselle Cellbooster water light needle products in February. The company currently reserves more than 10 Ⅲ products and more than 20 Ⅱ products in research, in addition to the layout of a number of domestic and foreign Becton Dickinson & Co projects, product reserves are rich, is expected to be gradually approved.

③ channel coverage acceleration, focusing on the development of head mechanism. By the end of 2021, the company cooperates with more than 40 agents and has more than 60 professional medical and beauty sales teams, covering more than 2400 cities and 2400 institutions, of which TOP500 institutions cover more than 430 institutions, and it is predicted that the number of institutions covered by 2022 will reach 4000. Among them, emphasis will be placed on increasing the share of TOP500 institutions in order to enhance their influence.

④ Xuanzhu Biology plans to be spun off and listed independently, which is expected to enhance its ability to raise external funds, while the fourth Ring Road can also focus on cultivating core businesses such as medical beauty.

Investment advice: buy rating

The company is the only listed target of Botox, with a large amount of botulinum toxin in the short term and an one-stop medical and beauty platform in the long run to expand a comprehensive product pipeline. It is predicted that the company's net profit from 2022 to 2024 is 7.5,9.5 and 1.18 billion yuan (the previous value is 2022-2023 net profit 12.5 and 1.75 billion yuan). The main reason for the revenue adjustment is that the epidemic affects the development of botulism business, and the market share target may be lowered. The profit side adjustment is mainly due to the fact that the R & D investment level of the company's innovation drug sector will remain high during the forecast period, which will affect the overall profit in the short term.

Risk hint: the market competition aggravates the risk, the risk that the progress of market expansion and product approval is not as expected, the risk of pharmaceutical policy and market supervision, and the risk that the public data used in the research report may lag behind or not updated in a timely manner.