Event: On August 29, 2023, the company released its 2023 semi-annual report. In the first half of 2023, total operating revenue was 6.907 billion yuan, an increase of 33.28% over the previous year; net profit for the parent group was 1,285 billion yuan, an increase of 104.04% over the previous year.
The performance of APIs is outstanding, and insulin is about to reach an inflection point. Pharmaceutical sector: Achieved revenue of 2,436 billion yuan (+29.1%).
Insulin achieved revenue of 498 million yuan (-19.6%), of which recombinant human insulin and third-generation insulin sold 231 million yuan and 267 million yuan respectively. Antibiotic sales amounted to 1,725 million yuan (+50.5%), of which injectable piperacillin sodium and tazobactam sodium were 387 million yuan (+22.7%), amoxicillin capsules sold 247 million yuan (+17.7%), and veterinary pharmaceutical preparations sold 534 million yuan (+158.6%). Intermediates/APIs sector: Intermediates and APIs achieved revenue of 1,047 billion yuan (+41.4%) and 3.423 billion yuan (+34.1%) respectively. Among them, API prices and volume have risen sharply, driving the API sector to grow rapidly. By region, overseas business achieved revenue of 1,362 billion yuan (+29.4%), accounting for 19.7% of revenue. The recovery in demand represented by overseas markets has led to a steady rise in market prices of related products, and the company continues to occupy a leading position in the domestic and export markets of intermediates and APIs.
Profit levels have increased, and cost rates have continued to be optimized. In the first half of 2023, the gross profit margin was 46.53% (+3.03pp), and the net interest rate was 18.60% (+6.45pp). The sharp rise in the volume and price of intermediates/APIs led to an increase in the company's profit. The sales cost was 975 million yuan (+21%), and the sales rate was 14.12% (-1.43 pp). The management fee was 381 million yuan (+10.39%), and the management fee rate was 5.51% (-1.14pp). The R&D expenses were 339 million yuan (+39.60%), and the R&D rate was 4.90% (+0.22%). The company made significant progress in several products such as GLP-1 in the first half of the year. The financial expenses were 82 million yuan (+35.47%), and the financial rate was 0.56% (+0.14pp). The inventory balance for the first half of 2023 was $2.164 billion, accounting for 11.40% of assets (-0.87pp). The inventory balance for the first half of 2023 was $2.192 billion, accounting for 11.09% of assets (-1.70pp). The total closing balance of accounts receivable and notes receivable for the first half of 2023 was $5.588 billion, accounting for 80.76% of revenue (+1.96pp)
The inflection point of insulin is approaching, fitness is growing rapidly, and GLP-1 is in full bloom. In insulin collection, the company is actively expanding sales of insulin products. Looking forward to the second half of the year, as price factors are clarified and sales volume rises, the insulin business is expected to resume steady growth. The company has formed full coverage in the field of diabetes. The project covers insulin analogues such as Tokugu insulin injection, Tokugu Mendong double insulin mixed injection, and GLP-1 receptor agonists such as liraglutide injections. Among them, smeglutide injections are in phase I/III for diabetic indications and phase I for weight loss indications. The animal insurance business has begun to gain strength, and will continue to grow rapidly in the next few years with the continuous development of new customers and new products.
Profit forecast and valuation: We expect the company's operating income from 2023-2025 to be 144.37, 164.39 and 18.565 billion yuan, respectively, up 27.16%, 13.86%, and 12.93% year on year; return net profit is 2,095, 23.59, and 2,655 billion yuan, respectively, up 32.50%, 12.60%, and 12.54% year on year. Maintain a “buy” rating.
Risk warning: Risk of falling short of expectations in the API and intermediates business; risk that Mendon's insulin promotion falls short of expectations; market competition intensifies, and sales of insulin products fall short of expectations.