1H23 performance is lower than we expected.
The company announced 1H23 results: revenue of 4.3 billion yuan,-19% compared with the same period last year; net profit of return to home / deduction of non-return to mother was 960 million yuan, respectively, compared with 28% of the same period last year. Take a look at the second quarter alone: the income is 1.86 billion yuan,-33% compared with the same period last year; the net profit of returning to the mother / deducting non-returning to the mother is 360 million yuan respectively, compared with 52% of the same period last year. Due to the failure of Jiangsu collection of cardiovascular generic drugs and the decline in emergency-related business, the results in the first half and second quarter were lower than we expected.
Trend of development
The pressure in the second quarter was mainly due to the decline in emergency business and the failure to win the bid for generic drug collection. The company said that in the first half of 2022, the emergency business contributed about 1 billion yuan of revenue (including antigens, equipment and reagents, etc.), which declined in the same period this year. In addition, clopidogrel and Atto vastatin calcium failed to win the bid in the second collection of calcium in Jiangsu Province, local income declined and needed channel compensation, which affected the pharmaceutical sector 1H23 revenue year-on-year-8.5% compared with the same period last year. In addition to the above two items, in the first half of 2023, the company said that the year-on-year growth rate of routine business income of medical devices was 10-11%, that of cardiovascular intervention innovative products was + 13%, that of coronary drug ball and cutting balloon implantation was + 40%, that of stapler was + 30%, that of anesthetic equipment was slightly higher than that of the same period last year, mainly because the purchase intention of dealers was affected by the expectation of collection. The income of medical services and health management was + 15% compared with the same period last year, of which the income of Hefei Cardiovascular Hospital was + 70% year-on-year. Despite the recent restructuring of the health care industry, management said it had not yet adjusted the 2023 non-net profit target corresponding to equity incentives and would go all out in the second half of the year.
The innovation pipeline was carried out as scheduled. The company expects that products such as degradable PFO occluder, coronary sonic balloon, radiofrequency ablation needle of atrial septum, glargine insulin and so on will be approved in the near future; cryoablation balloon has recently entered the clinical stage, Dulapeptide-like drugs are in clinical phase 3, and Simelug peptide-like drugs will be declared IND in 1Q24. In addition, the company has reached a holding agreement with Minwei Bio, the GLP-1/GCGR/GIP-Fc 3 target molecule independently developed by the latter is in the clinical phase 1, and a number of innovative products with different indications such as weight loss, fat reduction, non-alcoholic fatty liver, heart failure and so on are being developed. In addition, the company said that it will continue to pay attention to ophthalmology, skin, oral and other consumer business, as well as the international layout of various business lines, and strive to reduce the proportion of domestic public hospital income in the future.
Profit forecast and valuation
Taking into account the decline in emergency business year-on-year, drug collection pressure and other factors, we respectively cut the forecast of 24-year non-net profit deducted by 13% from 13% to 21.4 million RMB, corresponding to the 24-year deduction price-to-earnings ratio of 16,14 times for 2023 Universe. We maintain our outperform industry rating, lowering our target price by 10% to 27.5 yuan, corresponding to a 24-year non-price-to-earnings ratio of 24 times 2023 Universe, which is 51% higher than the current share price.
Risk
The impact of collection is higher than expected, the competition pattern is deteriorating, the promotion of new products is not as expected, and the internationalization is not as expected.