Incident: The company released its 2022 annual report and the first quarter report of 2023. It achieved revenue of 6.45 billion yuan (+22.5%) in 2022, net profit of 570 million yuan (+0.2%), net profit of 540 million yuan (+4.6%) of non-return mother's net profit; 2023Q1 achieved revenue of 1.55 billion yuan (+13.5%), net profit of 130 million yuan (+3.9%), and net profit of 140 million yuan (+3.7%) after deducting non-return mother's net profit.

There was a reduction in corporate fee rates in 2022. By sector, in 2022, the company achieved revenue of 1.89 billion yuan (+48.6%) from sterile formulation solutions and stand-alone machines, achieved revenue of 1.78 billion yuan (+10.6%) from testing and packaging solutions and stand-alone machines, achieved revenue of 660 million yuan (+171.3%), solid formulation solutions and stand-alone machines achieved revenue of 470 million yuan (-12.6%), and pharmaceutical water equipment and engineering system integration achieved revenue of 850 million yuan (+39%). The company's gross margin in 2022 was 36.1%, year-on-year - 3.6pp, 2023Q1 gross margin was 34.7%, year-on-year - 1.3 pp. It is expected to be mainly due to macroeconomic events impacting the upstream supply chain, leading to an increase in production costs, and a return in gross margin of some products after the vaccine equipment dividend. The company is actively working to stabilize the supply chain, and gross margin is expected to remain stable in the future. In terms of cost rate, the company's sales expense ratio, management expense ratio, and R&D expense ratio in 2022 were 11.9%, 6.2%, and 8.4% respectively, compared to -0.8 pp, -0.5 pp, and -0.5 pp, respectively. The company actively promoted the reduction of operating costs and increased efficiency, and the cost rate was reduced.

The range of new products continues to expand. The company launched a number of new products in 2022. Among them, continuous BFS went offline in May 2022, achieving the first breakthrough in this product field in China. One-off reaction systems, filler consumables, etc. were launched on the market. At the same time, the company has blossomed a lot in the field of complex formulations, and the development of various products has been successfully introduced to the market. Three products, such as inhalants, transdermal implants, and nuclear drugs, have filled the domestic gap.

Profit forecasts and investment recommendations. Net profit for 2023-2025 is expected to be 740 million yuan, 870 million yuan, and 990 million yuan respectively. The corresponding dynamic PE is 12 times, 10 times, and 9 times respectively, maintaining the “buy” rating.

Risk warning: the risk that downstream customer demand does not meet expectations; the risk of increased competition in the industry; the risk that the company's new product development does not meet expectations.