Incident: The company released its 2023 interim report. Revenue for the first half of the year was 553 million yuan, up 8.59% year on year, net profit of 95.9 million yuan, down 17.85% year on year, after deducting non-net profit of 9.412 million yuan, down 16.68% year on year.
Inventory and incentive expenses are disrupted in the short term, and heavy formulations are about to be released. The company's revenue continued to grow in the first half of the year, mainly driven by the growth of overseas markets for anti-tumor, respiratory and cardiovascular products. We expect fluctuations on the profit side mainly due to: 1) the impact of the product structure. The growth of high-margin didrogesterone in the first half of the year was limited due to factors such as the removal of inventory by overseas customers; 2) Affected by share payment expenses, the share payment fee for the first half of the year was 11.4641 million yuan. Excluding this influence, the non-net profit after deducting this influence was 106 million yuan (-6.53%, same below). On a quarterly basis, 23Q2 revenue was 251 million yuan (-13.
65%), net profit of 5.02 million yuan (-34.09%), net profit of 50.28 million yuan after deducting non-net profit of 50.28 million yuan (-32.34%). Looking ahead to the second half of the year, the company's performance is expected to resume its growth trend, driven by continued release of core API varieties and formulations (didrogesterone tablets), and gradual gains in the small nucleic acid business.
Segment of business: Core products drive continuous API growth, and dosage of formulations is worth looking forward to. API: Overseas markets for anti-tumor, respiratory, and cardiovascular products grew in the first half of the year, and overall revenue increased, while didrogesterone, which was released rapidly last year, was limited in the first half of the year due to factors such as overseas customers leaving inventory. Driven by gradual inventory clearance and demand for API from the company's domestic drug listing, didrogesterone is expected to resume a rapid growth trend in the second half of the year. Formulation: The first domestic imitation of the heavyweight variety didrogesterone is expected to drive rapid growth in performance. The company's major product, didrogesterone tablets (single form), were approved in June 2023, and a major breakthrough was made in the “API plus formulation” integration strategy. At present, the company has set up a pharmaceutical marketing team of nearly 20 people, and sales of didrogesterone tablets are being carried out in an orderly manner. Dydrogestrel is an integrated variety of the company's API preparation, and the competitive pattern is quite good. Currently, only Yuanyuan Abbott and Orient have the ability to commercially produce APIs, and the company is expected to share a huge market with Yuanyuan with the advantages of integrating API formulations.
Cost rate: Due to product structure fluctuations, the cost rate has increased, and R&D investment has continued to increase. Gross profit margin: 23H1 and 23Q2 gross profit margins are 49.79% (-1.67 pp) and 54.90% (+6.60 pp). Fluctuations in gross margin are mainly caused by changes in product structure. Expense rate: 23H1, 23Q2 Sales expense ratio is 4.68% (+0.83pp), 6.04% (+2.48%), management fee rate 14.81% (+3.94pp), 17.56% (+8.45pp), financial expense ratio -1.48% (+1.47pp), -4.68% (+0.66pp). Changes in sales expenses are mainly due to an increase in sales staff, and changes in management expense rates are mainly due to equity incentive amortization. Changes in financial expense rates are mainly due to changes in exchange rates. R&D investment: 23H1, 23Q2 R&D expenses were 55.91 million yuan (+0.74%) and 30.2 million yuan (+29.50%), accounting for 10.12% (-0.79pp) and 12.05% (+4.02pp) of revenue. The company continues to increase R&D investment and promote various R&D projects in an orderly manner. Currently, 29 products are in the R&D stage, covering small-molecule APIs, polypeptides, oligonucleotide APIs, and formulations.
Profit forecast and investment advice: We expect the company's revenue from 2023-2025 to 1,314 million, 17.28 billion yuan, 2,298 million yuan, up 30.4%, 31.5%, and 33.0% year on year; return net profit of 2.64, 344, and 447 million yuan, up 25 million yuan year on year.
1%, 30.4%, 30.0% The current stock price, corresponding to 23-25 PE, is 33/25/20 times. Considering the continued strength of the company's key varieties, it has been declared that the market prospects for large varieties are broad, and the amount of formulations is imminent. At the same time, reserve projects are abundant. Funding and expansion of production capacity are expected to increase performance in the long term, and actively expand to the fields of polypeptides and small nucleic acid drugs CRO/CDMO to open up growth space and maintain “buy” ratings.
Risk warning events: risk of new product and process development; risk of changes in the international trade environment; risk of environmental protection and production safety; risk of exchange rate fluctuations; risk of delays or untimely updates of disclosed information.