1H23 Net Profit Meets Our Expectations
Dongcheng Pharmaceutical announced its results for the first half of 2023: revenue of 1,785 million yuan, up 1.13% year on year; net profit of 184 million yuan, corresponding to profit of 0.22 yuan per share, up 9.23% year on year, in line with our expectations.
Development trends
The nuclear drug business has resumed steady growth. At 1H23, the company's nuclear drug business revenue was 502 million yuan, an increase of 19.18% over the previous year. Among them, 18F-FDG revenue was 215 million yuan, up 18.48% year on year; Yunke injection revenue was 124 million yuan, up 22.66% year on year; and revenue from iodine [125I] sealed seed sources was 83.27 million yuan, up 51.28% year on year. We believe that in the future, with the recovery of medical treatment volume in the nuclear medicine department, the company's nuclear drug business is expected to maintain a steady growth trend, and its profit contribution as a high-margin business is expected to continue to increase.
The decline in revenue in the API sector narrowed in 2Q23, and the pharmaceutical sector expanded new growth points. 1H23, the company's API business revenue was 953 million yuan, a year-on-year decrease of 11.85%, mainly due to the impact of declining global demand and prices for heparin APIs. In the second quarter alone, the company's API sector revenue was about 540 million yuan, down about 6.5% from the previous year. The decline is already narrowing. Furthermore, 1H23's pharmaceutical sector revenue was 263 million yuan, an increase of 18.44% over the previous year. Among them, injectable sodium hydrocortisone succinate achieved sales revenue of 7365 million yuan, an increase of 325% over the previous year. During the reporting period, the company's enoxaparin sodium injection was approved for listing, further expanding the company's anticoagulant product matrix.
Continue to promote the research and development of nuclear drugs integrating innovative diagnosis and treatment. According to the company announcement, as of August 23, 2023, Lan Nacheng's diagnostic nuclear drug fluorine [18F] serotide injection has completed phase I clinical trials and read out the data. The phase I clinical trial of fluorine [18F] fistatin injection is about to be completed; overseas phase I clinical trials of the therapeutic nuclear drug 177Lu-LNC1004 have begun to be enrolled, and 177Lu-LNC1003 has been approved for clinical use in the US. We believe Lannacheng's integrated diagnosis and treatment nuclear drug is expected to gradually show its innovative value in the future.
Profit forecasting and valuation
Considering the impact on API prices, we slightly lowered our 2023/2024 EPS forecast by 4.5%/3.1% to 0.49 yuan/0.56 yuan. The current stock price corresponds to the price-earnings ratio of 28.5/24.8 times 2023/2024. We maintain our outperforming industry rating. Considering the downturn in industry valuation centers, we lowered our target price by 6.5% to 18.6 yuan, corresponding to a price-earnings ratio of 37.9/33.0 times 2023/2024, with 33.1% upward margin compared to the current stock price.
risks
Export price pressure for heparin APIs has exceeded expectations, the volume of nuclear medicine tests has fallen short of expectations, and progress in research and development has fallen short of expectations.