Incidents:

In 2022, the company achieved operating income of 1,960 million yuan, +12.55% year on year; net profit of 330 million yuan, -4.13% year on year; net profit of non-return mother was 222 million yuan, -14.62% year on year.

2023Q1 achieved operating income of 716 million yuan, +38.51% year on year; net profit of returned mother was 169 million yuan, +40.96% year on year; net profit of non-return mother was 164 million yuan, +42.86% year on year.

Analytical reviews

Rapid growth in the first quarter, and gross margin returned to normal levels in 23Q1

Looking at a single quarter, the company's revenue in Q4 2022 was 521 million yuan, +7.25% year on year; net profit of returned mother was 0.05 billion yuan, -89.88% year on year; net profit after deducting non-return to the mother was -83 million yuan. However, 23Q1 recovered rapidly, and 2023Q1 achieved operating income of 716 million yuan, +38.51% year on year; net profit of Guimu was 169 million yuan, +40.96% year on year; after deducting net profit of non-return mother was 164 million yuan, +42.86% year on year.

2023Q1's overall gross margin was 74.86%, -0.14 percentage points year on year; period expense ratio was 43.57% year on year, -1.43 percentage points year on year; of which sales expenses rate was 25.41%, +3.26 percentage points year on year; management expenses ratio 17.43%, year on year -4.46 percentage points; financial expense ratio was 0.73%, -0.23 percentage points year on year.

Various sectors are growing steadily, and the advantages of exclusive varieties of traditional Chinese medicine are obvious

By sector, the proprietary Chinese medicine business achieved revenue of 1,765 million yuan, an increase of 10.96% over the previous year, and the proprietary Chinese medicine business continued to maintain a steady growth trend; other businesses grew steadily, and the commodity distribution business achieved revenue of 49 million yuan, an increase of 11.35% over the previous year; other businesses achieved revenue of 104 million yuan, an increase of 17.51% over the previous year.

The company and its subsidiaries have 217 drug approvals, including 47 exclusive specialty products, 69 product regulations entered the national essential drug catalogue, 119 product regulations entered the national medical insurance catalogue, and 22 products were recognized as the first batch of Guangxi national medicines. Currently, it is in a leading position in the industry in throat, oral medicine and urinary system medication.

With the help of R&D, the integration of two wings opens the second growth curve

Innovations and upgrades have been carried out around the two leading products in the Sanjintablet and Watermelon Cream series, and some second-tier key products, to accelerate the pace of research on secondary development of fist products and research and development of new classic traditional Chinese medicines. Various research and development work has been carried out smoothly, 4 new drug projects have been completed, and the acceptance of the Science and Technology Department's “Advanced Secondary Development and Industrialization Upgrade Research” and “Biomedical Class 2 Drug Recombinant Anti-VEGF Humanized Monoclonal Antibody Injection Development” has been completed. The first stage of research has been completed on classic recipe projects.

The biopharmaceutical research and development pipeline continues to expand. Sun's Baochuan Biotech has a total of 11 research projects. Of these, 7 clinical trials are ongoing, and 3 new IND approvals were obtained during the reporting period. Among them, BC007 antibody injection was Baochuan Biotech's first new drug project to be reported in China and the US, marking an important step in Baochuan Biotech's “overseas” journey.

Investment advice

We expect the company's revenue from 2023 to 2025 was 23.2/271/3.13 billion yuan respectively, up 18.6%/16.4%/15.8%, respectively, and the net profit of the mother was 4.7/55/ 63 billion yuan respectively, up 42.3%/16.6%/14.9%, respectively. The corresponding valuation is 24X/20X/18X. Maintain a “buy” rating.

Risk warning

Performance growth fell short of expectations; biopharmaceutical CDMO business orders and production capacity fell short of forecasts.