High prices of iodine in upstream raw materials dragged down gross profit margins. The technical reform project pushed 2Q23 to reverse losses. The company released its annual report on 8/28. 1H23 revenue was 1,084 million yuan (+15.0% yoy), net profit of 35 million yuan (-45.0% yoy), net profit of non-return home was 26 million yuan (-48.8% yoy), 2Q23 achieved revenue of 518 million yuan (+21.8% yoy), net profit of 0.26 billion yuan, deducting non-net profit of 019 million yuan over the previous year. In the context of a sharp rise in the price of the upstream raw material iodine, the company has reversed losses on the profit side through iodine recycling and technical improvement projects. Considering that the price of iodine in upstream raw materials is expected to drop in 24, driving the increase in gross margin, we gave the company a net profit of 150/340/518 million yuan in 23-25, 20xPE in '24 (comparable company Wind unanimously expected 24E PE 16x, leading gave a premium), and a target price of 19.87 yuan (previous value of 23.91 yuan) to maintain the “buy” rating.
The decline in iodine prices is expected to drive a steady recovery in gross margin in 24
The company 1H23 achieved a gross profit margin of 23.6%, down 5.7 pct from the same period last year, but 2Q23 has already shown signs of stabilization (1Q22-2Q23 gross margin was 31.3/26.8/18.6/20.6/20.5/ 26.9%, respectively). The decline was mainly due to cost increases driven by price increases of upstream commodities (the unit price of imported iodine, 3M23-7M23, maintained 65-69 US dollars/kg vs. 30-35 US dollars/kg in '21, but it is below 8M22's highest point of 71.28 US dollars/kg. Customs statistics platform). The main reasons for the 2Q23 month-on-month recovery: 1) the price of iodine fell month-on-month; 2) the share of high-margin iodoxanol increased; 3) the company invested in technical improvement projects and strengthened the recycling of iodine to gradually raise the level of gross margin. Considering that the raw material iodine price is expected to return to a low level in '24, we expect the company's gross margin to rise steadily to around 30% in '24.
Contrast agent API: Shipment volume was basically stable, and product structure improvements helped increase revenue 1H23 million yuan. The company achieved contrast agent revenue of 888 million yuan (+16.5% yoy), of which API achieved revenue of 668 million yuan (+10.1% yoy). We estimate that the sales volume of the three major APIs is about 600 tons, which is basically the same as the previous year. The slight increase in average price was mainly due to the increase in the share of shipments of the high gross margin product, ioxanol. We believe that benefiting from the recovery of overseas customer demand, the release of the company's production capacity, and overseas cooperation with partners, API shipments are expected to reach around 1200-1400 tons in '23, and the improvement in product structure (increase in the share of ioxanol) is expected to drive both revenue and profit increases, and the volume of shipments in '24 is expected to increase further on this basis.
Contrast agent formulations: rapid release by collecting and collecting Dongfeng
Benefiting from the fifth batch of collection (10M21 began implementation, iodoxacol+iohexanol won the bid) and the seventh batch of collection (11M22 began execution, iopazol won the bid), 1H23 Shanghai Sitaili achieved revenue of 221 million yuan, but the rise in the unit price of iodine led to an increase in API prices, an increase in formulation costs, and an increase in investment in new product development, with a net profit of 1,090,000 yuan. With the launch of new products to supplement the product line (iomepril has been approved for listing in 2M23; iofodoxol is expected to be approved within 23 years; gadoleveglutamide is declared for listing and is expected to be approved within 23 years), we expect contrast agent formulations to generate revenue of 500 million yuan for the full year of 23 years, and the profit side is expected to achieve profit.
Risk warning: Product sales fell short of expectations, and R&D progress fell short of expectations.