From one to more products, R & D and governance are getting better. The company's recombinant human insulin was approved in 1998 and sold mainly to second-generation insulin before 2019. Ganjing was approved in 1919, quick-acting and pre-mixed in 21 and 22 years. At the same time, the company is also carrying out research and development of a new generation of insulin, such as Degu, and the insulin pipeline is rich. The company's research and development continues to advance in the field of diabetes, and the pipeline has been extended from insulin to oral hypoglycemic drugs and GLP-1.
In addition, the company introduced two gout / high uric acid class 1 new drugs in 21 years, and the treatment field was expanded to gout / high uric acid. In terms of governance, after Dr. Leng Chunsheng took over as chairman in 19 years, he set up a team of professional managers, and the current management team is experienced. In the past 20 years, the company introduced Dehong Capital as a war investment to optimize its equity and governance structure.
The reason behind the five-year stock price adjustment. Before 2018, Tonghua Dongbao had an extremely outstanding performance in both the performance and the capital market, with a compound growth rate of 48% in deduction non-net profit from 10 to 17, and the company's market capitalization grew rapidly from 6 billion to 40 billion yuan. However, since 2018, the high growth of the second-generation insulin has ceased, and the third-generation insulin has failed to enter the pipeline in time, and the performance growth rate has declined. At the same time, since the pilot insulin collection in Wuhan in 2019, the market has been worried about lowering the price of insulin collection and weakening the company's profitability, and valuation has continued to be suppressed. After more than five years of adjustment, the company's valuation has been relatively low.
In the post-collection era, the income of the second generation of insulin stabilizes, and the third generation of insulin is expected to release quickly. 1) second-generation insulin: collect and accelerate domestic substitution. According to data from the Rubik's Cube, the market share of Tonghua Dongbao second-generation insulin in China reached 40.6% in 2022 (in terms of sales), surpassing Novo-Nordisk A/S for the first time and becoming the largest domestic second-generation insulin manufacturer. We believe that with the gradual increase in the penetration rate of insulin use, the number of insulin patients in China continues to grow, relying on the replacement of imported second-generation stock and first-generation animal insulin, the company's second-generation insulin sales have the potential to grow. After digesting and collecting the price reduction pressure, the company's second-generation insulin revenue is expected to gradually return to growth. 2) the third-generation insulin: glargine insulin and asparagus insulin (quick-acting + premixed) are the two largest varieties of the third-generation insulin in China. Glargine insulin was approved in 2019 and approved in 2021 and 2022 respectively. Under the company's mature diabetes sales channels, it is expected to maintain rapid growth. According to estimates, we expect the company's third-generation insulin to grow by 50%, 33% and 34% respectively from 2023 to 2025, and the third-generation insulin will be the core driver of the company's performance growth.
Research and development pipeline ushered in the harvest, the future new product relay on the market. In the layout of new product research and development, the company focuses on endocrine therapy, continues to cultivate diabetes, and the R & D pipeline achieves full coverage of insulin analogues, GLP-1 and oral hypoglycemic drugs. At the same time, the company is also expanding into other endocrine fields, introducing two new gout / hyperuric acid class 1 drugs in 2021, expanding the treatment field from diabetes to gout / hyperuricemia, and the company is also exploring the treatment of weight loss, NASH and other endocrine and metabolic diseases. Since 2023, Dongbao will welcome new products on the market every year, and the company's performance growth will be more diversified in the future. In addition, there is no shortage of potential new products in the company's innovative drug pipeline, and there is room for further improvement in the company's valuation as category 1 new drugs such as gout / hyperuric acid URAT1 inhibitors and URAT1/XO dual-target inhibitors read out clinical data.
Investment advice: Tonghua Dongbao is a leading domestic insulin enterprise, the company is out of the impact of collection, performance is expected to return to the high growth channel. We expect the company's homing net profit from 2023 to 2025 to be 10.1,12.1 and 1.45 billion yuan respectively, with year-on-year changes of-36.1%, 19.3% and 20.4%. The current share price is 20, 17 and 14 times PE. According to the DCF model, we expect the reasonable valuation to be 29.1 billion yuan and the corresponding stock price to be 14.6 yuan in 2023. Cover for the first time, giving a "push" rating.
Risk tips: 1, insulin special set to renew the contract to reduce prices; 2, the deterioration of the competition pattern of the insulin industry; 3, the progress of research and development of some products lags behind.