2023H1's revenue growth rate exceeded expectations, achieving semi-annual profit for the first time: 2023H1's revenue reached 2.5 billion yuan, an increase of 93.9% over the previous year. Among them, product sales revenue reached 2.15 billion yuan, a year-on-year increase of 82.2%. The main source of the increase in revenue was that the sales volume of the biological-like drug trituzumab (trastuzumab) and the innovative drug sizumab (slulizumab) exceeded expectations. The revenue of Han Qu Yu reached 1.28 billion yuan, an increase of 57.1% over the previous year; the revenue of Hans music reached 560 million yuan, an increase of 62.3% over the previous year. In addition, the company's BD and R&D service revenue reached 350 million yuan, an increase of 222% over the previous year. As the clinical phase of the company's late-stage pipeline came to an end, capitalized R&D investment declined markedly, from 2.9 billion in the same period last year to 130 million. Overall R&D expenditure fell from $8.3 billion to 670 million, and the R&D cost ratio fell to 22%. The cost of sales ratio rose slightly to 31%. The management cost rate and finance cost ratio decreased year by year, divided into 6% and 2% respectively. The company achieved net profit of 240 million yuan during the period, and achieved a semi-annual reported profit for the first time.
Innovation and transformation continue to be harvested, and unique drugs are explored on the R&D platform: In January 2023, the company's first self-developed innovative drug, slurizumab, was successfully approved by the CDE for new indications. Combined with carbram and etoposide for first-line treatment of ES-SCLC, it became the world's first first-line anti-PD-1 monoclonal antibody for the first-line treatment of small cell lung cancer. The success of the SCLC with a differentiated layout also gave the Sluli single race another important seat on the increasingly internal PD-1 circuit.
On the global market side, ES-SCLC compliance has also submitted a listing application to the EMA, and the US bridging test is underway. In addition, many types of first-line lung cancer and gastric cancer are currently being treated in phase III clinical trials. In the early clinical phase, innovative drugs with various antibodies and fusion proteins are progressing steadily. The antibody-conjugated drug (ADC) development platform built by the company also has two molecules that have entered the IND filing stage. The 5D platform for discovering new targets and new drugs through the integration of medical information data and the BAMD platform for compute-driven molecular design and optimization are used to create unique potential first-in-class breakthrough therapeutic drugs for continuous supplementation of pre-clinical pipelines.
The prospects for biological-like drugs to go overseas are broad, and the expansion of production capacity drives sales growth: the biosimilar pipeline continues to provide the company with a steady increase in revenue. Han Qu Yu is expected to be approved for listing by the FDA in the second half of the year, and will continue to expand overseas markets. Pertuzumab and desulizumab are also in phase III clinical trials and are expected to be marketed in 2025. The company's production capacity continues to expand. The Xuhui base and Songjiang base (1) have a total production capacity of 48,000L, providing support for the rapid release of Han Qu Yu. In addition to the Xuhui base, which has received double GMP certification from China and the European Union, the Songjiang base (1) is also actively preparing on-site audits by the Global Drug Administration, providing sufficient preparation for the company's products to expand overseas markets. The Songjiang base (2) is speeding up factory verification. Automated process equipment with a total production capacity of 96,000L also provides space for future expansion of production capacity for new products and further cost reduction and efficiency.
Adjust the target price to HK$17.90 and buy rating: We adjusted our profit forecast for the next 3 years and calculated that the company will achieve positive free cash flow in 2023. We have adopted the DCF valuation method. Assuming WACC is 10.0% and continuous growth is 2.0% to value the company, the calculation shows that a reasonable valuation is about HK$8.84 billion. For the target price of HK$17.90 billion, there is room for an increase of 48.9% compared to the current price, maintaining the purchase rating.