2023H1's performance was in line with expectations, the nuclear drug sector resumed growth, and the networked nuclear pharmacy layout enhanced core competitiveness. Export demand for heparin is expected to recover, and the gross margin of APIs increased by 4 pcts over the same period last year. The pharmaceutical sector is growing steadily, and hormone products are being released rapidly. Innovative research and development continues to advance, and Lanna Cheng's integrated diagnosis and treatment nuclear drug is progressing at an accelerated pace. Expenses are controlled reasonably, and overall gross margin has increased. According to the DCF valuation method, we estimated that the company's reasonable valuation was about 18.5 billion yuan, corresponding to the target price of 22 yuan in 2023, maintaining a “buy” rating.
2023H1 Company's performance was in line with expectations. 2023H1 Company achieved operating income, net profit attributable to parent, and net profit of 173 million yuan, 188 million yuan, and 173 million yuan respectively, compared with +1.13%, +9.23%, and +6.21%. 2032Q2's revenue, net profit attributable to parent, and net profit not attributable to parent were 934 million yuan, 134 million yuan, and 131 million yuan respectively, compared to +5.54%, +17.54%, and +20.18%. Overall performance was in line with expectations.
The nuclear drug sector has resumed growth, and the layout of networked nuclear pharmacies has enhanced core competitiveness. The sales revenue of the company's 2023H1 nuclear drug business segment was 502 million yuan, +19.18% year-on-year, accounting for 28.14% of total revenue. Among them, the PET-CT imaging agent 18F-FDG achieved revenue of 215 million yuan, +18.48% over the same period; Yunke injection, a rheumatoid treatment drug, had revenue of 124 million yuan, or +22.66%; and revenue from iodine [125I] sealed seed sources was 83 million yuan. As of the 2023 mid-year report, the company has 27 nuclear drug production centers (including 7 single-photon and 20 positron) and 2 other centers in operation. Another 8 positron nuclear drug production centers are under construction. The company's interim report predicts that by the end of 2023, more than 30 nuclear drug production centers will be put into operation, the nuclear drug production and distribution network will be further improved, and the core competitiveness of the company's development will continue to improve.
Export demand for heparin is expected to recover, and the gross margin of APIs increased by 4 pcts over the same period last year. The sales revenue of the 2023H1 API business segment was 953 million yuan, -11.85%, accounting for 53.38% of revenue; among them, the key product, heparin API products, achieved revenue of 792 million yuan, or -14.94% year-on-year, mainly due to the decline in overseas demand for heparin APIs after the pandemic. 2023Q1's API revenue was 413 million yuan, -21.90% year on year; Q2 revenue was 540 million yuan, -2.17% year on year. The Q2 year-on-year downward trend has narrowed significantly. With the gradual completion of de-inventorying from overseas downstream customers, we expect Q3 API revenue to be basically the same as 2022/Q3. Furthermore, although API terminal prices have declined, due to the price reduction of upstream raw materials, the overall gross margin of 2023H1's API business reached 25.36% of +4.02 pcts over the same period last year.
The pharmaceutical sector is growing steadily, and hormone products are being released rapidly. 2023H1's pharmaceutical business segment sales revenue was 263 million yuan, +18.44%; the key product, hydrocortisone succinate for injection, grew strongly, with sales revenue of 74 million yuan, +325%; nadroparin calcium injection won the eighth batch of national collection in March 2023 and will begin licensing in accordance with national requirements; enoxaparin sodium injection was approved for listing, helping the company build an anti-coagulant brand.
Innovative research and development continues to advance, and Lanna Cheng's integrated diagnosis and treatment nuclear drug is progressing at an accelerated pace. 2023H1 invested about 163 million yuan in R&D, +117.96% year on year, accounting for 9.13% of revenue (+4.89 pcts year on year). 2023H1's integrated diagnosis and treatment innovation platform Lan Nacheng has accelerated new product development. Fluorine [18F] triotide injection (LNC1001) has completed domestic phase I clinical trials, fluorine [18F] fibronstatin injection (LNC1005) phase I clinical trial is about to complete patient enrollment; 177Lu-LNC1003's IND application has been approved by the US FDA, and China is expected to apply for IND in the near future; 177Lu-LNC1004 injection is being prepared for overseas phase I clinical enrollment; at the same time, LNC- Various innovative nuclear drugs, such as 1007 and LNC-1008, will enter the registration and application stage.
Expenses are controlled reasonably, and overall gross margin has increased. The company's 2023H1 sales, management, R&D and financial expenses were 303 million yuan, 133 million yuan, 84 million yuan, and -89 million yuan, respectively, +16.75%, +19.50%, +24.18%, and -14.89%; the sales, management, and R&D expenses rates were 16.96%, 7.44%, and 4.70%, respectively, +2.27 pcts, +1.14 pcts, and +0.87 pcts. 2023H1, net operating cash flow was 112 million yuan, -96.46% year-on-year, mainly due to increases in material payments and taxes; the company's overall gross margin was 44.60%, +4.68 pcts. Among them, the gross margins of the nuclear pharmaceuticals, APIs, and pharmaceutical businesses were 70.96%, 25.36%, and 68.34%, respectively. The increase in overall gross margin was mainly due to the increase in the share of revenue from the nuclear pharmaceuticals and pharmaceuticals business, which have higher gross margins.
Risk factors: risk that R&D progress falls short of expectations; risk that promotion of new products falls short of expectations; risk of price reduction in drug tenders; risk of increased market competition; risk of policy changes in the pharmaceutical industry.
Profit forecast, valuation and rating: The company's nuclear drug and formulation business has resumed growth, export demand for heparin APIs is expected to return to normal in the second half of the year, and there are broad prospects for integrated diagnosis and treatment of innovative nuclear drugs. According to 2023H1 performance, considering the increase in investment in innovative R&D, we adjusted the company's net profit forecast for 2023/24/25 to 409 million yuan/504 million yuan/617 million yuan (the original forecast was 409 million/517 million/629 million yuan). According to the DCF valuation method, we estimated that the company's reasonable valuation was about 18.5 billion yuan (the beta coefficient was 1.3 billion, the risk-free interest rate was 2.8%, and the stock risk premium was 5.0%), corresponding to the target price of 22 yuan for 2023, and maintained the “buy” rating.