1H23 performance is in line with our expectations
The company announced 1H23 results: revenue of 1.6 billion yuan, an increase of 9% over the same period last year, an increase of 26% over the same period last year, and a net profit of 630 million yuan, an increase of 18% over the same period last year, in line with expectations.
Trend of development
The core product, Ridaxian, grows steadily. The company's core product, Rida Xian (new thymus method), has a 1H23 income of 1.33 billion yuan (+ 13%YoY). The company actively carries out Ridaxian life cycle and channel management, and the company has its own GTP platform for further iteration. The number of registered patients and doctors has increased by 21% and 18% respectively, and functions such as intelligent consultation have been integrated. 1H23 accounts for about 78% of sales. Two new national treatment guidelines and consensus were included in the 1H23 thymus method, and two studies were updated in ASCO 2023. Due to the new immunomodulatory characteristics of the thymus method and the consumption of channels and social inventory during the epidemic, we expect that the demand driven by the epidemic and the release of replenishment demand after inventory consumption will be conducive to the release of Ridaxian in 2023. In addition to Ridaxian, 1H23 authorized to introduce products (Qiantai, DaYouze, etc.) income of 110 million yuan, slightly lower than 120 million yuan of 1H22 compared with the same period last year, mainly due to the impact of mining; CSO revenue of 160 million yuan, down 5.9% from the same period last year, mainly because the order of diagnosis and treatment in 1Q23 hospital was affected by the epidemic.
Stable profitability and continuous repurchase and dividend payout. The company's cash flow grew steadily, with 1H23 operating cash flow of 580 million yuan (+ 11% YoY). 1H23's gross profit margin fell by 74.5% compared with the same period last year, mainly due to factors such as inflation in the overseas supply chain; the sales expense rate was 20.4%, up 1.4ppt from the same period last year, and the increase in sales expenses was mainly due to the resumption of promotion activities after the restoration of medical institutions and the upgrading of the GTP model, which remained at a low level in the industry. The rate of management expenses was 3.9%, a decrease of 2.5ppt compared with the same period last year, mainly due to the higher base of 1H22 management expenses, including the impairment of intangible assets. The company has actively carried out repurchase and dividend payouts. Since 2023, the company has used a total of about HK $1.043 billion for repurchase and the 2022 annual report, including a cash offer at a premium of nearly 700 million yuan (major shareholders and management are not involved).
Expand the layout of pipelines around superior departments. The company has established an efficient commercial team in the field of anti-tumor and infection, and expanded its product portfolio around superior departments through cooperative introduction. In the cooperative pipeline:
1) in the field of anti-tumor, Dayuze has issued its first prescription in China in June 2023; 2) in the field of anti-infection, Vibativ, an advanced antibiotic introduced by the company, has submitted its application for market in September 2021 and is currently in the stage of review and approval. Vaborem (meropenem / Weibobactam) introduced in August 2022 has completed the first phase III clinical administration in July 2023. We believe that these mid-late molecules are expected to rely on the company's mature commercial platform to further drive revenue growth in the next 2-3 years.
Profit forecast and valuation
Taking into account the pace of delivery and the recovery of sales and R & D costs after the normalization of medical order, we cut our profit forecast for 2023-2024 by 2% to 1.02 billion yuan, and the current share price corresponds to a price-to-earnings ratio of 4.5 times 2023-2024. Maintain the outperform industry rating and maintain the target price of 12.50 yuan, corresponding to a price-to-earnings ratio of 6.4 to 5.8 times 2023-2024, which is 30% upside from the current stock price.
Risk
The deterioration of product pattern; the impact of drug collection; new drug research and development is not as expected; product supply is not as expected.