As a leader in the export of synthetic caffeine, there is still room for the decline in raw material prices and gross profit: the company is a leading domestic caffeine exporter, and its main customers include international well-known beverage companies such as PepsiCo Inc, Coca-Cola Company, Red Bull and so on. Due to fluctuations in raw materials and the suspension of production by European chemical companies, the price of caffeine began to rise sharply at the end of 2021, benefiting from a sharp increase in revenue and profits. According to the company's annual production target of 16700 tons of caffeine in 2023, combined with the fact that caffeine prices are still relatively high in history, and the prices of major raw materials for superimposed caffeine production, such as cyanoacetic acid and acetic anhydride, continue to decline, the company still has room for improvement in revenue and profit levels of caffeine products in 2023.
After the recovery of consumption after the epidemic, terminal sales of health products and vitamins are expected to reach a new high in recent years: affected by the epidemic, the terminal sales of vitamin products / health food products were blocked in 2021-2022, and revenue and profits continued to decline. COVID-19 epidemic control measures continued to optimize from the end of 2022 to the beginning of 2023, the follow-up offline promotion and sales of vitamin health products are expected to be carried out normally, consumption recovers after the superimposed resident epidemic, and terminal sales of health products in 2023 are expected to recover greatly compared with the previous year.
With the release of acarbose soon, fully tap the external supply of APIs: in 2022, the company completed the merger and acquisition of Shengxue, a subsidiary of Stone drugs, and acquired the business of acarbose APIs of the latter. According to the fixed increase implementation plan, the annual production capacity of San Xueacarbose will be increased to 280t to meet the growing demand for external supply of third-party raw materials. According to the company announcement, cooperation has been reached with a number of acarbose pharmaceutical companies, including Green Leaf Pharmaceuticals. With the advance of subsequent collection, the process of domestic substitution of preparations is expected to be further accelerated, thus driving the release of domestic acarbose raw materials.
Profit forecast and valuation: currently, as a domestic leader in the production and export of synthetic caffeine, the company completed the acquisition of Shengxue in 2022, acquired the latter acarbose raw material drug business, and further enriched its own functional raw material product pipeline. Superimposed domestic post-epidemic recovery factors, health products business is also expected to continue to repair. The company recently announced that it plans to increase the cash capital of Stonehenge, which is also owned by Stone Pharmaceutical, to gain a controlling stake in the latter, which is expected to expand into the field of innovative medicine such as monoclonal antibody, ADC and mRNA vaccine in the future. We expect the company to achieve revenue of 30.4%, 339%, 3.79 billion yuan in 2023-2025, an increase of 15.7%, 11.5%, 11.8%, and a net profit of 9.5%, 11.1%, 1.33 billion and 30.8%, 16.5%, 20.1%, respectively, corresponding to the 16x/14x/12x valuation of PE in 2023-2025. Using the segment valuation method, we estimate that the net profits of functional raw materials and health food sectors in 2023 will be 830 million yuan and 120 million yuan respectively. According to the respective comparable company valuation levels, we will give 2023 PE 20x and 23x respectively, with a market capitalization of 16.5 billion yuan and 2.7 billion yuan respectively, with a total target market capitalization of 19.2 billion yuan, which is 25% higher than the current market capitalization.
Risk tips: caffeine price accelerated decline risk, acarbose collection renewal risk and API overcapacity risk, health food terminal recovery less than expected risk, innovative drug research and development risk.