Considering the impact of many factors, such as the higher-than-expected decline in the number of newborns, the intensification of competition in the HPV vaccine market, and the sharp drop in market demand for COVID-19 vaccine, the performance of 2023H1 Company was lower than expected. We lowered our company's annual EPS forecast on 2023-24-25 to 0.67 shock 0.78 shock 0.92 yuan (the original forecast was 1.09 1.20 shock 1.48 yuan), corresponding to PE 35-30-26 times.

With reference to the valuation of the comparable company (based on the prediction of CITIC's Research Department), as of September 5, 2023, the average PE of Baike Biological and Kangtai Biological is 34 times. Considering that the company is the only listed vaccine company in China with 13-valent pneumonia vaccine and bivalent HPV vaccine, and actively arranges the mRNA technology platform, we give the company a valuation premium of 40x PE in 2023. Lower the target price to 27 yuan (the original target price is 44 yuan). In the long run, the company has a complete vaccine research and development technology platform and a leading international progress, while in the short term, the company is facing competitive pressure from nine-valent HPV vaccine, and the number of newborns is lower than expected, so it is downgraded to "overweight" rating.

The competition for HPV vaccine intensified and sales fell short of expectations. The company's 2023H1 realized revenue of 2.168 billion yuan (year-on-year-7.68%), net profit of 455 million yuan (+ 8.13%), and non-return net profit of 422 million yuan (- 12.27%). Of this total, 2023Q2 revenue is 1.335 billion yuan (year-on-year-21.10%); return-to-mother net profit is 283 million yuan (year-on-year-25.92%); non-return net profit is 288 million yuan (year-on-year-25.00%).

2023H1 gross profit margin 87.41% (year-0.11pcts); sales expense rate 36.12% (year-2.33pcts); management expense rate 5.58% (year-on-year + 0.72pcts); R & D expense rate 16.84% (year-on-0.2pcts).

The net interest rate of 2023H1 is 20.99%, which is + 3.06pcts compared with the same period last year. The company's performance declined in the first half of the year compared with the same period last year, mainly due to: the decline in the number of ① newborns was more than expected, and the sales of the company's 13-valent pneumonia vaccine products were under pressure; ② Merck & Co Inc 9-valent HPV vaccine was approved to extend the age to 9-45-year-old people, and the company's bivalent HPV vaccine faced increased competition in the self-financed market; ③ exported 1 million doses of 13-valent pneumonia vaccine to Morocco in 2022 and confirmed that the revenue of 13-valent pneumonia vaccine was in 2022H1, so the year-on-year base of 2023H1 was higher.

The product is rich, and the research and development of nine-valent HPV vaccine is advancing steadily. A total of 2183 million doses were issued for 8 vaccine products (12 specifications) listed by 2023H1, an increase of 230.04% over the same period last year. Among them, 463.77 million doses of 13-valent pneumonia conjugate vaccine were issued, + 24.29% last year, 414.39 million doses of bivalent HPV vaccine were issued, + 368.42% last year, and 8525 million doses of DPT vaccine were issued, which was-46.05% last year. The following vaccine varieties were re-issued: Hib vaccine (714,500 doses), AC conjugate vaccine (111.93 million doses), ACYW135 polysaccharide vaccine (166.12 million doses), AC polysaccharide vaccine (779.18 million doses). The company's non-immunization program vaccine has completed access in 31 provinces / cities across the country, reaching about 3000 district and county CDC customers and more than 30,000 vaccination clinics. In the first half of the year, the bivalent HPV vaccine won a total of 168.6 million doses of government procurement projects. According to the 2023H1 announcement, the company has made steady progress in product development, clinical trials and registration. At present, the company has 8 vaccine projects under study, including 4 clinical III projects (9-valent HPV, ACYW135 meningococcal polysaccharide conjugate vaccine, COVID-19 and COVID-19 mutant mRNA vaccine), and 2 clinical II and phase I projects. The company is also actively exploring the application prospect of mRNA vaccine in the field of tumor therapy.

International business has been accelerated and substantial progress has been made. The company has won the purchase order of 13-valent pneumonitis conjugate vaccine in Morocco this year, and some of the products were delivered in July 2023. The company has delivered some of the meningococcal group A meningococcal polysaccharide vaccines used in the Immunization Program to its Egyptian customers for its National expanded Immunization Programme (EPI), and has launched a technical cooperation with Indonesian partners on the localization and subpackaging of 13-valent pneumonia conjugate vaccine and bivalent HPV vaccine solution in Indonesia. As of June 30, 2023, the company's products have been exported to 18 countries. The company has obtained the Pakistan registration certificate of ACYW135 group meningococcal polysaccharide vaccine, the Bangladesh registration certificate of 13-valent pneumonia conjugate vaccine and the Thailand registration certificate of 13-valent pneumonia conjugate vaccine, among which the 13-valent pneumonia conjugate vaccine Thailand registration certificate is the first time that the company has obtained 13-valent pneumonia conjugate vaccine in PIC/S countries, which is expected to bring new growth points for international sales.

Risk factors: the company's main vaccine products sales (13-valent pneumonia vaccine, bivalent HPV vaccine), research and development (nine-valent HPV vaccine, mRNA vaccine) are not as expected, competition increases the risk.

Earnings forecast, valuation and rating: considering the impact of many factors, such as the higher-than-expected decline of newborns, the intensification of competition in the HPV vaccine market, and the sharp drop in market demand for COVID-19 vaccine, 2023H1's performance was lower than expected. We lowered our company's annual EPS forecast on 2023-24-25 to 0.67 EPS 0.78 shock 0.92 yuan (the original forecast was 1.09 1.20 shock 1.48 yuan), corresponding to PE 35-30-26 times. With reference to the valuation of comparable companies (based on the prediction of CITIC's Research Department), as of September 5, 2023, the average PE of Baike Biological and Kangtai Biological in 2023 was 34 times. Considering that the company is the only listed vaccine company in China with 13-valent pneumonia vaccine and bivalent HPV vaccine, and actively arranges the mRNA technology platform to give a certain valuation premium, we give the company 2023 40x PE valuation level. Lower the target price to 27 yuan (the original target price is 44 yuan). In the long run, the company has a complete vaccine research and development technology platform and a leading international progress, while in the short term, the company is facing competitive pressure from nine-valent HPV vaccine, and the number of newborns is lower than expected, so it is downgraded to "overweight" rating.