Incident: The company released its 2023 annual report. In the first half of the year, it achieved revenue of 582 million yuan, a year-on-year decrease of 35.11%; net profit of Gimu was 30.85 million yuan, a year-on-year decrease of 83.29%; after deducting non-net profit of 25.74 million yuan, a year-on-year decrease of 84.95%.
Costs, exchange rates, and COVID-19 disturbances affect short-term performance, and formulations and CDMOs are expected to drive growth. The company's revenue fluctuation in the first half of the year was mainly due to the phased tightening of market demand due to fluctuations in the international environment, a decrease in COVID-related orders, and the divestment of Liaoyuan Pharmaceutical Company (22H1 revenue of 118 million yuan). Profit-side fluctuations were mainly due to: 1) revenue reduction; 2) investment income and fair value changes from foreign exchange hedging; 3) new production capacity was in the early stages of climbing, product pipelines were in the centralized transfer stage, and short-term comprehensive operating costs were high. Looking at a single quarter, 23Q2 achieved revenue of 336 million yuan (-15.40%), net profit of parent income of 12.59 million yuan (-118.15%), net profit of 13.85 million yuan (-77.72%) after deducting non-net profit of 13.85 million yuan (-77.72%).
The company's pharmaceutical business maintained rapid growth in the first half of the year, achieving revenue of 109 million yuan (+28.24%). Looking ahead to the second half of the year, as formulations continue to be released, CDMO cooperation deepens, and new production capacity gradually rises, driven by the formulation and CDMO business, the company's performance is expected to return to a rapid growth trend.
The fixed increase and expansion of production further deepens the main business, reduces costs and increases efficiency, and optimizes the capital structure. The company issued a fixed increase announcement on July 20, 2023. It intends to issue A shares to no more than 35 (inclusive) specific investors, with a total amount of capital raised not exceeding 652 million yuan. The net amount raised after deducting the issuance fee is to be used for the “Phase I Project of APIs and Intermediates with an annual output of 3,760 tons”, the “Factory Intelligent Transformation and Upgrading Project”, and supplementary liquidity. After the construction of the project is completed, it will further enhance the company's overall competitiveness and bring new performance growth points.
Division of business: 1) Formulations: Maintain rapid growth and accelerate the pace of R&D registration applications. In the first half of the year, the company's glitazide sustained-release tablets won the bid, completed the renewal of the perindopril tert-butylamine tablets in the Yangtze Triangle (Shanghai-Zhejiang-Anhui) Alliance Region, Fujian, Sichuan-Tibet Alliance, and the renewal of two specifications for losartan potassium tablets in Henan Province; multiple varieties were approved for listing. Currently, 15 products have been marketed domestically; 13 new projects have been set up, with more than 40 varieties in the research pipeline, and 5 projects have entered the BE stage. Through official BE, 6 new products have been submitted to the BE stage. A product whose patent has expired. 2) CDMO: Continuously deepening cooperation with major customers. The special workshop built in cooperation with MSD was officially put into operation. On the basis of the first phase of the product cooperation, negotiations on the second phase of the project have already begun; in-depth cooperation with KRKA has drawn up a number of cooperation projects, and some of them have already been implemented. 3) API: New and old production capacities change in an orderly manner and enter a new stage of development. In the first half of the year, rosavastatin calcium route II APIs obtained CEP certificates. Chlorpheniramine maleate, memantine hydrochloride, and rivaroxaban passed domestic review and approval. 8 varieties were converted to production, 4 varieties were submitted for overseas market registration certification, and 5 varieties were submitted for domestic CDE registration. In terms of production capacity, Anmei's “400 tons/year API technology transformation project” workshop 9 has been officially put into operation, and workshop 10 is undergoing verification batch production; all construction entities of the first phase of the “520 tons of API per year” project in Zhejiang and America have been completed, most of the mechanical and electrical installations have been completed, and some workshops have already carried out verification batch production; and Xuanmei's Phase II expansion project has already started.
Expense ratio: gross margin decreases, expense ratio increases, R&D expenses fall. The gross profit margin for the first half of the year was 30.34% (-11.92 pp). We expect the decline in gross margin to be mainly due to the high gross margin CDMO business and the reduction in COVID-19 business revenue; the sales expense ratio, management expense ratio, and financial expense ratio were 3.47% (+1.84 pp), 13.70% (+3.44 pp), and 2.32% (+1.69 pp), respectively. The increase in cost ratio was mainly due to the company's divestment of Liaoyuan Pharmaceutical and the corresponding decline in R&D expenses.
Profit forecast and investment suggestions: According to the interim report, considering fluctuations in the international environment and the pace of the company's business and production capacity release, we adjusted the profit forecast. We expect the company's revenue from 2023-2025 to be 16.50, 19.25, 2,317 billion yuan (1,756, 21.19 billion yuan, 2,548 billion yuan before adjustment), an increase of 13.3%, 16.6%, and 20.4% over the previous year; return to mother net profit 2.27, 2.
84.371 million yuan (2.68, 3.49 million yuan, 454 million yuan before adjustment), a year-on-year increase of -32.9%, 25.1%, and 30.6%.
Currently, the company's stock price corresponds to 15/12/9 times PE in 23-25. Considering that the company is in the phase of API expansion and upgrading and accelerated transformation of formulations and CDMO, it maintains a “buy” rating.
Risk warning events: environmental risk, quality risk, risk of price fluctuations of APIs and intermediates, risk of product development falling short of expectations, risk of delays or untimely updates of disclosed information.