Incident: The company released its semi-annual report for 2023. The company's 2023H1 achieved operating income of 132,592 billion yuan, a year-on-year increase of 18.70%, net profit of 2,610 billion yuan, a year-on-year decrease of 29.38%, minus non-net profit of 2.199 billion yuan, a year-on-year decrease of 17.96%. Excluding the impact of one-time special profit and losses such as Qingchunbao's relocation revenue of 1 billion yuan in the same period of the year and Shanghai Pharmaceutical Cansino's asset impairment preparations of 400 million yuan in the current period, net profit for the first half of the year was 3,076 billion yuan, up 9.34% year on year; net operating cash flow inflow 1,638 million yuan, a significant increase from -556 million yuan in the same period last year.
23Q2 achieved revenue of 66.366 billion yuan in a single quarter, up 21.08% year on year, net profit of 1,902 billion yuan, down 55.32% year on year, after deducting non-net profit of 842 million yuan, down 41.15% year on year
Revenue growth has exceeded expectations, and profits significantly lower than expected are mainly one-time factors. The revenue side exceeded expectations, but the profit side Q2 declined sharply, mainly due to a one-time impact: 1) Shanghai Pharmaceutical Cansino due to a sharp drop in demand for the COVID-19 vaccine and there is great uncertainty about undertaking the CDMO business. Asset impairment is expected to affect Shanghai Pharmaceutical's profit by 4-5 billion dollars; 2) Q2 credit asset impairment increased 120 million yuan year over year due to lengthening accounts receivable cycles; 3) R&D cost investment increased by 120 million dollars over the same period last year. Looking at revenue by sector, the 2023H1 pharmaceutical industry achieved revenue of 14.699 billion yuan, an increase of 12.64% over the previous year; contributed 1,328 billion yuan in profit, an increase of 20.29% over the previous year. The pharmaceutical business achieved revenue of 117.893 billion yuan, an increase of 19.50% over the previous year; a profit contribution of 1,770 billion yuan, an increase of 1.43% over the previous year. Major shareholders contributed 344 million yuan in profit, an increase of 2.69% over the previous year. In the pharmaceutical distribution sector, the company's 2023H1 innovative drug sales increased 24.0% year on year, introducing 14 imported generational varieties; the total imported vaccine distribution business gradually rebounded, up 15.7% year on year; sales of non-pharmaceutical businesses such as devices and health were about 20.4 billion yuan, up 22.16% year on year.
Steadily promote innovative research and development and dig deeper into the brand value of traditional Chinese medicine. 2023H1 invested 1,218 million yuan in R&D, an increase of 25.91% over the previous year. There are a total of 64 new drug pipelines. The marketing application for X842 for reflux esophagitis indications was accepted in February of this year, the marketing application for China I001 tablets for hypertension was accepted in June of this year, and Xinweining, a new class 2 drug for stomach acid disease introduced by the company, was officially commercialized in May of this year. The Chinese medicine sector revenue of 2023H1 was 5.120 billion yuan, an increase of 21.64% over the previous year. The company has 8 traditional Chinese medicine companies, 9 core brands, and rich traditional Chinese medicine resources. Among them, Yangxin tablets are the number one brand of proprietary Chinese medicine for standardized diagnosis and treatment of cardiac rehabilitation, and Guanxining tablets can be used as a secondary preventive medication for cardiovascular diseases. In the future, the company will seize development opportunities in the traditional Chinese medicine industry and dig deeper into the brand value of traditional Chinese medicine based on its own advantages.
Investment suggestions: As a comprehensive large-scale pharmaceutical enterprise integrating industry and commerce, Shanghai Pharmaceutical has gradually implemented an innovation pipeline in the pharmaceutical industry, and is rich in traditional Chinese medicine varieties. We are optimistic about the potential of state-owned enterprises to deepen reforms. Considering the impact of asset impairment, we expect the company's net profit to be 52.34/63.06/6.948 billion yuan, respectively, an increase of -6.82%/20.48%/10.18% over the previous year. EPS is 1.41 yuan, 1.70 yuan, and 1.88 yuan respectively. The current stock price corresponds to 2023-2025 PE 12.6/10.5/9.5 times, maintaining the “recommended” rating.
Risk warning: The risk of drug collection and price reduction being higher than expected, the risk that mixed reform and integration progress falls short of expectations, risk of failure in new drug development, etc.