Peace viewpoint:

Kexing Pharmaceutical Biopharmaceutical has strong strength and core competitiveness. Founded in 1997, Kexing Pharmaceutical is an innovative biopharmaceutical enterprise mainly engaged in the research, development, production and sales of recombinant protein drugs and microecological preparations. The company's revenue growth is steady, 2023H1, affected by the release of the epidemic, the company's revenue accelerated growth, achieving operating income of 649 million yuan, an increase of 3% over the same period last year. The profit end is under short-term pressure. 2023H1's net profit lost 48 million yuan, an increase of 1741% over the same period last year. The decline in net profit is mainly due to the increase in R & D expenses and the introduction of excellent management and technical personnel. In the future, with the gradual clearing of the impact of collection and acquisition, the release of new products in overseas markets, the capitalization of R & D investment and the strengthening of sales end control fees, the company's net profit is expected to recover and accelerate growth.

The "four King Kong" have their own advantages to build the main body of the company's revenue, and the product gross profit is basically stable. The company's main products include: human erythropoietin, human interferon α 1b, human granulocyte stimulating factor and Clostridium butyricum. In 2022, the income was 7.22,2.76,1.80 and 122 million yuan respectively, accounting for 54.8,21.0,13.7 and 9.3 per cent of revenue respectively. From 2017 to 2022, the gross profit margin of the company's main business was 79.0,81.1,81.5,80.0,79.4 and 75.4% respectively, which remained basically stable as a whole. Each of the four products has its own advantages. Yipuding is a clinical first-line anti-anemia drug with significant price advantage, Serojin is a short-acting interferon with the advantage of children's medicine, and Bate likes the first-line drug of rising white with the advantage of price and indication. Chang Le Kang is an exclusive probiotic product that can be used by both old and young pregnant women.

Focusing on bio-drugs going out to sea, the introduction of varieties in the overseas market is just around the corner. Kexing Pharmaceutical has more than 20 years of overseas commercialization experience, overseas commercialization experience is profound. By 2023, H1, the company has introduced 7 kinds of offshore products, focusing on the field of cancer and autoimmune bioanalogous drugs, covering regulations and emerging markets. Among them, bevacizumab targeting VEGFR, infliximab and Adamumab targeting TNF- α, focusing on overseas emerging market countries, are expected to be sold in 2023Q4. The self-produced albumin paclitaxel has the advantage of dosage form and has a good competition pattern in Europe. It is expected to become the second white purple imitation pharmaceutical company in Europe, and 2024H1 is expected to be commercialized overseas.

Investment suggestion: we expect that the company will achieve revenue of 1569 and 2.182 billion yuan and net profit of-1.03 million and 0.92 billion respectively in 2025. According to the absolute valuation of the company's business, we value the company as a whole at 4.985 billion yuan, corresponding to the target price of 25.03 yuan. Taking into account the company's Ke capsule sales volume and a number of products under research and introduction will continue to promote clinical and overseas commercialization, the pipeline valuation is expected to be further improved, covering for the first time, giving a "recommended" rating.

Risk tips: 1) the risk of rising raw material costs. The price of raw materials for the company's main products is at risk of rising. 2) the progress of product research and development is lower than the expected risk. The company has a large number of research projects, and there is a risk that the progress of research and development is lower than expected. 3) the progress of overseas commercialization is not as good as expected. The company has introduced a large number of varieties, and there is a risk that the progress of overseas listing is lower than expected. 4) the risk of industry policy change. The national catalogue of base drugs and the catalogue of medical insurance will be adjusted irregularly.