Performance review
The 2022 results are basically in line with market expectations
The company announced its 2022 results: operating revenue/total pharmaceutical sales revenue was 91.5/105.0 billion yuan respectively, up 10%/14% year on year; Guimu's net profit was 3.26 billion yuan, up 8% year on year. The net profit growth rate was slightly lower than the revenue growth rate due to the increase in management expenses due to the new business layout. Considering the recurrence of the epidemic throughout 2022 and Daili's new entry into the seventh batch of collection, the performance is basically in line with market expectations.
Development trends
The performance of various business lines was steady, leading to positive growth in 2023. In 2022, the company's total revenue from pharmaceutical sales reached 10.5 billion yuan, including central cerebrovascular lines of 5.52 billion yuan (+14%), digestive lines of 3.61 billion yuan (+12%), ophthalmology lines of 440 million yuan (14%); skin lines of 3.4 billion yuan (+10%), and revenue from other products of 590 million yuan (+30%). The company said that Dailixin will begin harvesting in November 2022; the company expects Boyding and Yusfa to start implementing collection prices in July-August this year. The company expects that even if major brand drugs enter collection, they can maintain around 60% of sales before collection. Furthermore, the company said that the proportion of out-of-hospital sales of various production lines has already accounted for around 30%. The company expects positive growth in performance in 2023; starting in 2024, as innovative achievements are implemented, revenue growth will accelerate.
The innovative layout entered a harvest period this year, with significant revenue contributions in 2024. The company plans to launch 9 innovative products in China in the next 3 years. Among them, three products, including diazepam nasal spray, tericizumab, and methotrexate injection, will be approved in 2023. Considering factors such as health insurance access, they will have significant revenue contributions starting in '24. The company said that the blockbuster product lucotinib (the only topical JAK inhibitor approved by the FDA) is being prepared for a phase III clinical trial in China and is expected to be marketed in China in 2026.
The medical aesthetics/Southeast Asia layout continues to advance. Kangzhelei continues to expand its product offering through the endogenic+epitaxial model. During 2022, Kang Chulei acquired Heo Zero, obtained exclusive licensing rights for BMI injectable botulinum toxin type A from Korea in China, and cooperated with Incyte to obtain the benefits of lucitinib cream. By the end of '22, it had a team of more than 600 people, covering 20,000 dermatologists and about 10,000 medical institutions. Management expects Kangzhe Beauty and Ophthalmology's existing products to maintain growth of more than 30%, and innovative products will continue to be introduced in the future. In Southeast Asia business, the company relies on large-scale global variety resources to quickly introduce excellent products approved from Europe and the US into the Southeast Asian market, and has gradually established a competitive product portfolio. The company set up Southeast Asia headquarters in Singapore, focusing on six major countries including Indonesia and Malaysia, and plans to establish an operating structure integrating innovative research, production, pharmaceutical CDMO, and commercialization in stages.
Profit forecasting and valuation
Considering the company's expenses for making every effort to implement new business layouts such as medicine, beauty, and Southeast Asia, we lowered the 2023 adjusted net profit forecast to 3.4 billion yuan, and introduced the adjusted net profit forecast for the year 24 to 3.6 billion yuan. The current stock price corresponds to the price-earnings ratio of 8/7 times 2023/24. Based on optimism about the company's innovative layout, we kept the outperforming industry rating and target price of HK$18 unchanged, corresponding to the price-earnings ratio of 11/10 times 2023/24, with room for 43% increase from the current stock price.
risks
The reduction in procurement prices exceeded expectations, research and development failed, the competitive pattern worsened, and the expansion of the new track fell short of expectations.