Main points of investment:

Research and development of animal protection enterprise Placko. The company is mainly engaged in the research and development, production and sales of veterinary biological products (animal vaccines) and veterinary chemicals, especially in R & D strength. With many years of technological innovation, product quality assurance and breeding technical service system, the company provides all kinds of high-quality veterinary drug products and services for breeding customers and pet owners, which are favored by downstream breeding customers. Sitting on a number of national innovation platforms, the company always adheres to independent innovation and integrated innovation: by the end of 2023H1, the company and its subsidiaries have obtained 63 national new veterinary drug registration certificates, submitted 546 invention patent applications, and obtained 312 invention patent authorizations.

Animal health-"small and beautiful" breeding service industry. Animal health products are products specially used to prevent and control animal diseases and protect animal health. the industry demand is affected by the downstream breeding scale and epidemic prevention procedures, and the overall scale is small: China's veterinary drug market in 2021 reached 68.6 billion yuan, of which veterinary biological products were 17.018 billion yuan. However, due to factors such as administrative license restrictions, the industry threshold is high, the gross profit of products is considerable (65.87% gross profit of 137crude drug enterprises, "Veterinary Drug Industry Development report 2021"), and the industry is "small and beautiful". GMP promotes the "supply-side reform" of the industry and the upgrading of production facilities, but the industry has excess capacity and obvious product homogenization characteristics, and enterprises are facing fierce competition: by 2021, a total of 1579 enterprises across the country have passed the new version of veterinary drug GMP certification, with a total of more than 100000 veterinary drug product approval numbers. The industry is faced with problems such as overcapacity and low capacity utilization. Downstream aquaculture large-scale "consumption upgrade" points out the way to "break the situation": head animal protection enterprises are through a variety of ways (① products iterative update: virus strains, vaccine technology route upgrade, etc.; ② customer service capacity enhancement: to provide comprehensive aquaculture services, etc.) aims to break through the tight encirclement, meet the "high-end" needs of large-scale aquaculture enterprises for animal protection products, and achieve their own sustainable development.

The launch of African classical swine fever vaccine may bring tens of billions of market space expansion. African classical swine fever has become a major problem to be solved in the industry, but the research and development of vaccine is difficult and takes a long time. The main reasons are: the pathogen of ① is complex, ② has the characteristic of immune escape, and ③ has antibody resistance. A number of scientific research institutes have cooperated with universities and listed companies to apply for emergency evaluation for various routes of African classical swine fever vaccine. If the African classical swine fever vaccine is put on the market, it will significantly drive the expansion of the industry, with a potential market scale of more than 10 billion: 650 million pigs are produced according to the national pig year, and 4100 sows can be reproduced in a balanced manner. Immunization program commercial pigs are immunized twice a year (1 dose each), and sows can be immunized 3 times a year (1 dose each time). We expect that under the neutral hypothesis, the potential market size of African classical swine fever vaccine will exceed 10 billion. Will become the largest vaccine breed in the industry.

Outstanding R & D capability is one of the core points of the company. We believe that the core competitiveness of animal vaccine enterprises mainly lies in: research and development capabilities, product strength and channel expansion and service capabilities, corresponding to the upper, middle and lower reaches of the industrial chain. The R & D capability can be said to be the core competence of the company and the "upstream source" of sustainable growth. Specifically, ① has a mature R & D system, and the national innovation platform helps the company transform R & D achievements in a variety of ways; ② pays attention to the introduction of external talents and the allocation of high-end R & D talents. ③ subunit platform is the industry leader, specializing in E. coli protein expression system, breaking through many technical restrictions; the landing of ④ P3 laboratory is expected to further enhance R & D capability and innovation transformation speed.

"the old incense is still the same, the new support is in full bloom", self-research / cooperative research and development products are about to usher in the harvest. The company's existing products have strong competitiveness: the penetration rate of circum subunit vaccine in large-scale farms is increasing year by year, and conventional poultry vaccines are favored by farmers by virtue of their advantages such as safety and long immune protection period.

More importantly, the company around the downstream breeding needs to solve the pain points to launch the corresponding products, a number of products in research or waiting to be listed smoothly, is about to usher in the harvest. These include: ① round branch bivalent inactivated vaccine (subunit)-has entered the new veterinary drug registration stage; ② pseudorabies epidemic strain live vaccine-the new veterinary drug registration review test; ③ highly pathogenic avian influenza (H5+H7) trivalent subunit vaccine-has entered the new veterinary drug registration stage. At the same time, the company has actively laid out the pet medicine and vaccine section and set up a pet business department. at present, it has completed the establishment of research, production and marketing system, and the blockbuster cat triple vaccine has obtained clinical approval, and the progress is expected to be accelerated. Research and development of African classical swine fever vaccine in cooperation with Lanyuan Research Institute is expected to be the first to be approved: by mid-2023, the company is improving the relevant application materials according to the first expert review of emergency evaluation and has been resubmitted for review. It is expected to be approved to go public in 2024, becoming another blockbuster product of the company.

Coverage for the first time, giving a "overweight" rating. We are optimistic about the company's outstanding R & D technology advantages, and the improvement of sales penetration of large customers under the promotion of new products, listing and "major customers" policy is expected to drive the sustained growth of revenue and profits of the company. It is estimated that the company's operating income from 2023 to 2025 will be 14.95 million yuan, 17.75 percent, 21.7 percent, 18.8 percent, 18.3 percent, and 483 million yuan, respectively, with a net profit of 2.74 percent, 31.7 percent, 31.7 percent, and 33.8 percent, respectively. The current stock price corresponds to 28X/21X/16X in 2023-2025. Taking into account the company's follow-up new products are expected to continue to land, rapid growth, we believe that the use of PEG valuation can better reflect the value of the company, the company's PEG in 2023-2024 is 0.86and 0.66 respectively, lower than the average of comparable companies, covering for the first time and giving an "overweight" rating.

Risk hints: the risk that new product research and development is not as expected; the risk of intensified market competition; the operational risks that may be caused by policies, etc.