Incident: The company released its semi-annual report for 2023, achieving operating income of 1,057 million yuan, -7.05%; net profit of 1.19 million yuan, a year-on-year ratio of -41.03%; net profit of 112 million yuan, -24.08% year-on-year; and net operating cash flow of 107 million yuan, which changed from negative to positive. EPS 0.09 yuan. The performance is in line with market expectations.
Comment:
Heparin APIs are affected by cyclical fluctuations. Demolition compensation and exchange profit and loss affect short-term profit: 2023Q1-Q2, the company's single-quarter operating income was 608/449 million yuan respectively, +10.14%/-23.28% year-on-year; net profit from the original mother was 0.86/0.33 billion yuan, -33%/-55%; net profit of 0.86/026 billion yuan, net profit of 0.86/026 billion yuan, +12.09%/-63.12% year-on-year. Looking at the business structure in the first half of the year: API revenue was 459 million yuan, -17.31%, gross profit margin 13.39%, +0.68 pp year on year. It is estimated that it was mainly affected by fluctuations in the heparin API cycle; pharmaceutical revenue was 593 million yuan, +2.51% year on year, gross profit margin of 63.35%, +1.10 pp year on year.
Profit declined a lot year over year, mainly due to: 1) the company received compensation for the demolition of the South Square plot of the Railway Station in the same period last year, with fixed asset disposal profit of 57 million yuan, 2023H1 being only 0.24 million yuan; 2) Exchange revenue for the same period last year was 54 million yuan, and 2023H1 was only 0.06 million yuan. Net operating cash flow changed from negative to positive, and the company's sales repayment increased dramatically.
The strategic layout is Qianmu, Henan to create a long-term competitive advantage. In January 2023, the company announced the establishment of a joint venture with Muyuan Co., Ltd. in Henan Qianmu. After completing the first phase of construction and before starting the construction of the pharmaceutical product production line, all of the heparin crude products produced by the Qianmu Company will be sold to the parent company Qianhong Pharmaceutical. In the future, Qianmu will focus on the high-end heparin incremental market, gradually increasing energy levels from crude products to premium products and formulations, thus continuously increasing profit margins.
Establishing a joint venture with Muyuan is conducive to building a world-leading biopharmaceutical base for comprehensive utilization of pig by-products such as pig intestines, based on the resource advantages of domestic pig breeding and slaughter by Muyuan Co., Ltd. in domestic pig breeding and slaughter. Further expand the company's heparin industry chain, expand business scale, and enhance core competitiveness.
Proactively lay out innovative drugs to create long-term growth potential. 2023H1 invested 56 million yuan in R&D, +51.82% over the same period last year. The company has a total of three new drugs entering or about to enter phase II clinical trials, and a significant number of new drugs are awaiting approval for clinical research or in pre-clinical research. As of the 2022 annual report, QHRD107 capsules (target CDK9) have completed phase I clinical trials; QHRD110 capsules (target CDK4/6) are undergoing bed phase I clinical trials in Australia; and QHRD106 injections (target KLK) have completed phase Ia clinical trials.
Profit forecast, valuation and rating: Maintaining the forecast net profit for 2023-2025 to $2.57/3.30/$429 million, YoY -20.53%/+28.54%/+29.71%. According to the latest share capital estimate, the EPS is 0.20/0.26/0.33 yuan respectively. The current stock price corresponds to PE 26/20/15 times, respectively, maintaining the “buy” rating.
Risk warning: risk of fluctuations in the heparin cycle; risk of construction and industrialization in Qianmu, Henan falling short of expectations; risk of innovative drug research and development falling short of expectations.