The company released its semi-annual report for 2023: revenue for the first half of the year was 21.4 billion yuan (+0.22% year on year); net profit of 1.8 billion yuan (+16% year on year); net profit after deducting non-return net profit of 1.4 billion yuan (-26% year on year), mainly due to declining revenue from anti-epidemic products, increased competition in the US market for subsidiary Gland Pharma, increased foreign exchange losses due to US dollar interest rate hikes, and increased management/R&D expenses. Sales, management, and R&D expenses were 5.1 billion yuan (+21% year on year), 2 billion yuan (+22% year on year), and 2.1 billion yuan (+17% year on year), respectively. Short-term performance is under pressure.
The pharmaceutical sector is growing rapidly, and research and development continues to increase. Pharmaceutical business revenue for the first half of the year was 16 billion yuan (+12% year on year). Among them, sales of core anti-tumor and immunomodulatory products were 3.7 billion yuan (+45% year on year), mainly due to the rapid growth of products such as Hans, Han Qu You, and Su Kexin. Of these, Hans's revenue was nearly 600 million yuan. The pharmaceutical business invested 2.5 billion yuan in R&D (+22% year on year) to accelerate the global development process of the research pipeline. Hans has been granted a new ES-SCLC indication domestically, and its listing application in the European Union has also been accepted; Ikeda has been granted a new second-tier indication domestically; and Han Quyu's listing application in the US has also been accepted. At the same time, the marketing applications for the medical aesthetic and medical indications of the daxiBotulinumtoxina botulinum toxin introduced by the company have been accepted by the CDE.
Device diagnosis is under pressure in the short term, and the digital transformation of medical services is accelerating. The medical device and medical diagnostic business had revenue of 2.2 billion yuan (-45% year-on-year) in the first half of the year, mainly due to a significant decline in sales revenue of products related to the epidemic. The company adjusted its focus on non-anti-epidemic varieties and enriched the product pipeline in the three major businesses of medical beauty, respiratory health, and medical equipment. Healthcare service revenue for the first half of the year was 3.1 billion yuan (+7% YoY), mainly due to revenue recovery in offline hospitals and further focus on online business. The company continues to integrate resources to strengthen regional medical consortia, smart medical care and insurance services.
Profit forecasts and investment recommendations. It is estimated that the company's EPS in 2023-2025 will be 1.65 yuan/share, 2.13 yuan/share, and 2.60 yuan/share, respectively. Referring to the valuations of comparable companies, A shares were given 25 times the PE valuation in 2023, corresponding to a reasonable value of about 41.18 yuan/share; considering the A-H share premium factor, the corresponding reasonable value of H shares was HK$27.45 per share, maintaining the “buy” rating for A+H shares.
Risk warning. There is a risk that new drug development will fail, medical insurance price cuts have exceeded expectations, and market competition has exceeded expectations.