The company's semi-annual report for '23 was released, and the performance was under slight pressure. 23H1's revenue was 1,058 million/yoy -28%, net profit to the mother - 50 million/40 million for the same period last year, and gross profit of 748 million/yoy -26%. This is mainly due to changes in domestic pharmaceutical policies and a decline in sales volume due to changes in domestic pharmaceutical policies and the generic drug sector being affected by price reductions in collection and procurement prices. Among them, the sales cost rate was 20.13% /year on year +4.44 pcts, due to the expansion of medical and aesthetic sales staff and agency efforts; R&D investment in pharmaceutical projects is still the focus, several self-developed product tests have been completed one after another, the R&D cost rate is 27.85% /year on year - 3.38 pcts; management cost rate is 47.95% /year on year - 5.16 pcts, and the financial cost rate is 12.65% /year on year +5.86 pcts.
Medical and aesthetic business: Platform marketing has been upgraded twice, and product richness drives performance expansion. The medical and aesthetic platform Lianyan Space was successfully upgraded to the 3.0 marketing version. The medical and aesthetic business revenue was 194 million/yoy +97%, and gross profit was 135 million/yoy +76%, which is now the company's second growth curve. 1) The product matrix continues to be rich: the “self-development+BD” dual path creates a “botulinum toxin+hyaluronic acid+regeneration+optoelectronic+wire sculpture+skin care” full-cycle matrix. Currently, there are 40 products+ medical and aesthetic products. ① Self-research: More than 10 types of Class III and Class II medical and aesthetic product pipelines are under development; ② BD: Focusing on a single product, botulinum toxin, Lottibao, and developing various clinical application plans. The exclusive agent is Platinum Hyaluronic Acid Anrun and Le Tibao to form a “golden combination” that is popular, and the medical and aesthetic business is being further strengthened. 2) Marketing upgrade: Optimizing the “direct management+agency” marketing strategy, the medical and aesthetic sales team has more than 50+ people, mostly high-end talents from first-class medical and aesthetic enterprises. The agent sales team has expanded to nearly 400 people, and channels cover 337 cities and 4,000 medical and aesthetic institutions, providing a solid foundation for product implementation.
3) Stricter supervision and clearance of goods: The trend of comprehensive and strong supervision in the medical and aesthetic market is obvious. Illegal operations and control of counterfeit water goods help the company continue to improve its compliance business.
Pharmaceutical business: Multi-pipeline R&D goes hand in hand, and innovation drives revenue growth. In the pharmaceutical business, generic pharmaceuticals achieved revenue of 846 million/yoy -31%, and the innovative drug business lost overall. Affected by centralized procurement and health insurance negotiations, innovation+health insurance is still the core growth point. Future highlights are as follows: (1) Innovative drugs: ① Xuanzhu Biology: The domestic breast cancer racetrack has the most complete layout. It has developed 20+ innovative drug products, 25+ products under development cover various fields of oncology, NASH, and digestion. In '23, 3 leading innovative drugs were approved by the IND. ② Huisheng Biotech: Full coverage of the field of diabetes and complications. In '23, 3 chemical generic drugs for complications were approved for marketing, and the approval process for 11 products progressed steadily, and is expected to become a leading platform for the management of the entire course of diabetes. (2) Generic pharmaceuticals: The single product Clinao was removed from the key monitoring catalogue, 2 non-PVC powder double chamber bag products and oral mucosal solution were included in the 2022 medical insurance catalogue, various products were approved for listing, and the “cash cow” business developed steadily. At the same time, the company is speeding up the separation and divestment of generic drug businesses that do not meet performance standards and non-core health businesses to maximize performance.
Investment suggestions: The company adheres to the “innovative drug+medical aesthetics” two-wheel drive strategy. The generic drug sector is under pressure in the short term. The recovery of medical and aesthetic customer flow and sales strategy adjustments will drive sales and sales strategy adjustments. Subsequently, as the company gradually divests bad business, it may improve profitability. The company expects revenue of 23.51/27.33/3.186 billion in 23-25, net profit of -129/107/337 million, corresponding growth rate of +93.4%/+183.3%/+214.1%, corresponding to 24/25 PE of 53X/17X, maintaining the “increase in holdings” rating.
Risk warning: Industry competition increases risk, medical and aesthetic sales promotion falls short of expectations, pharmaceutical R&D and approval fall short of expectations