1H23's performance met our expectations
The company announced 1H23 results: operating income of 132,592 billion yuan, up 18.7% year on year; net profit of 2,610 billion yuan, down 29.38% year on year; net profit after deducting non-net profit of 2.199 billion yuan, down 17.96% year on year. The 1H23 results were in line with our expectations.
Development trends
The company's main business maintained a good growth trend in the first half of the year. In the same period last year, the company's subsidiary Qingchunbao obtained benefits from the relocation. In the first half of this year, the participating company Shanghai Pharmaceutical Cansino calculated asset impairment preparations. Excluding the impact of the one-off special profit and loss mentioned above, adjusted net profit was 3,076 billion yuan, an increase of 9.34% over the previous year. Net profit not attributable to parents after excluding the influence of Shanghai Pharmaceutical Cansino was 2,666 billion yuan, which is basically the same as the same period last year.
The industrial sector saw impressive growth in revenue and profits. 1H23, industrial revenue was 14.699 billion yuan, an increase of 12.64% over the previous year. The pharmaceutical industry contributed 1,328 billion yuan in profit, an increase of 20.3% over the previous year. The Chinese medicine sector achieved industrial revenue of 5.120 billion yuan in the first half of 2023, an increase of 21.64% over the previous year.
The distribution business maintained a steady trend. 1H23, distribution revenue was 117.893 billion yuan, an increase of 19.50% over the previous year. The pharmaceutical business contributed 1,770 million yuan in profit, an increase of 1.4% over the previous year. The company announced that in the first half of the year, sales in the company's innovative drug sector increased by about 24% year-on-year, successfully introducing 14 imported general-generation varieties; the general import vaccine distribution business gradually rebounded, with a year-on-year increase of 15.7%. The company's non-pharmaceutical businesses, such as equipment and health, sold about 20.4 billion yuan, an increase of about 22.16% over the previous year.
R&D is progressing steadily. 1H23, the company invested 1,218 million yuan in R&D, an increase of 25.91% over the previous year, of which R&D expenses were 1,026 million yuan, an increase of 26.76% over the previous year. Company announcement As of August 2023, the company has a total of 64 new drug pipelines, of which 3 have submitted pre-NDA or marketing applications.
Profit forecasting and valuation
Considering the company's asset impairment provisions, we lowered the adjusted 2023/2024 EPS forecast by 19.8%/18.3% to 1.38 yuan/1.57 yuan after the company's incentive to issue additional shares, an increase of -9.2% and 14.0% over the previous year.
The current A-share price corresponds to the price-earnings ratio of 13.0 times/11.4 times in 2023/2024, and the H-share price corresponds to 8.4 times/7.1 times the price-earnings ratio of 2023/2024. We maintained that A shares and H shares outperformed the industry ratings. We simultaneously lowered the target price of A shares by 18.0% to $22.0, corresponding to the price-earnings ratio of 16.0 times/14.0 times in 2023/2024, with an upward margin of 23.0% compared to the current stock price; we simultaneously lowered the target price of H shares by 18.0% to 15.72 HKD, corresponding to the price-earnings ratio of 10.2 times/8.7 times in 2023/2024, with 21.9% upside from the current stock price.
risks
Centralized drug procurement pressure; pharmaceutical industry business growth fell short of expectations; new product development fell short of expectations.