Hualan vaccine is the leading enterprise of influenza vaccine in China, and the company opens the market with tetravalent influenza vaccine as the core. In the short term, the impact of the epidemic on the company is expected to be eliminated this year, and with the recovery of the pace of influenza vaccination, the company's performance is expected to recover significantly in the second half of the year. In the medium to long term, with the cultivation of the overall domestic influenza vaccine market, there is still room for improvement in China's vaccination rate. considering the company's production capacity and first-mover advantages, the domestic initial launch of the superimposed company's children's dosage form influenza vaccine is expected to gradually release its volume. We believe that the company's future performance will continue to grow steadily and with strong certainty. To sum up, we give the company 2023 PE 27x, corresponding to the target price of 41 yuan, covering for the first time and giving a "buy" rating.

China's leading influenza vaccine enterprises, the epidemic disturbance is expected to be eliminated, driving the company's performance recovery. Hualan Vaccine was founded in 2005, is a professional engaged in human vaccine research and development, production, sales of high-tech enterprises.

The company has the largest influenza vaccine production base in the country and is in a leading position in the field of influenza vaccine.

Under the control of COVID-19 's epidemic situation and the impact of COVID-19 vaccination on the rhythm of influenza vaccination, the company's performance was under pressure from 2021 to 2022-the company achieved revenue of 1.83 billion / 1.826 billion yuan in 2021 and 2022, respectively, down 24.59% and 0.23% compared with the same period last year, and its net profit was 621 million / 520 million yuan, down 32.86% and 16.23% respectively. However, we believe that the impact of the epidemic is expected to be eliminated this year, the pace of influenza vaccination will return to normal, and the company's performance in the second half of the year is expected to recover significantly-according to the data of the Central people's Procuratorate, as of September 30, 2023, the company issued a total of 87 batches of influenza vaccines, accounting for 34.66% of the total batches of influenza vaccines issued, of which 84 batches were approved by 23Q3, and Q3 batches recovered significantly.

There is still much room for improvement in the coverage rate of influenza vaccine in China, and the company has obvious advantages in production capacity and first-mover. The vaccination rate of influenza vaccine in China is far lower than that of developed countries (according to OECD data, combined with our estimation of the coverage rate based on domestic vaccine batches, the coverage rate of influenza vaccine in China is less than that in Britain, the United States and Japan). As the country continues to promote influenza vaccination in vulnerable people, it is expected to continue to cultivate the influenza vaccine market. According to our estimates, the potential market size of influenza vaccine in China is 11.1 billion yuan, which has a broad space. At present, there are a large number of influenza vaccine supply enterprises, and more than a dozen enterprises have been approved and issued in 2022, but as an industry leader, the company still has obvious advantages in production capacity and first-mover. In terms of batch issuance, from 2018 to 2020, the annual number of influenza vaccines issued by companies accounted for 52.77%, 42.02% and 40.16% of the total domestic influenza vaccine batches, respectively. The proportion of tetravalent influenza vaccine batches issued was 100.00%, 86.10% and 61.41%, respectively, ranking first in the country. In 2021 and 2022, the company issued 100 / 103 batches of influenza vaccine respectively. Among them, the four prices were approved in 96 / 91 batches respectively (including 14 batches of children's dosage forms in 2022), continuing to maintain the leading position in China. In terms of production capacity, by the end of 2022, the company has a tetravalent influenza virus split vaccine production capacity of 100 million doses per year, and is expected to continue to gain market share in the future.

Tetravalent influenza vaccine as the core, the company extends the expansion of the vaccine pipeline. Tetravalent influenza vaccine covers a wider range of viruses, and is gradually becoming the mainstream influenza vaccine in China and the United States. the company focuses on tetravalent influenza vaccine, forward-looking layout of production capacity, and takes the lead in launching tetravalent influenza vaccine for children. Sales and profitability are expected to further improve. In addition to the tetravalent influenza vaccine, the company uses four core technology platforms to actively expand the vaccine pipeline to absorb acellular 100 (three-component) diphtheria tetanus combined vaccine, freeze-dried Haemophilus influenzae type b conjugate vaccine (Hib vaccine), group A meningococcal polysaccharide conjugate vaccine and other vaccines are conducting clinical research or preclinical research as planned, in addition, according to the company announcement. The company's human rabies vaccine and tetanus vaccine both obtained the "Drug Registration Certificate" in February 2023 and are about to be put on the market. In the future, we believe that the company will continue to promote the research and development of new vaccine products, enrich the product pipeline and increase new performance growth points.

Risk factors: the risk of iterative upgrading of industry technology; the risk of relatively single product structure; the risk of increasing competition; the risk of product quality; the risk that the sales progress of new products is not as expected; the risk of technology research and development is not as expected; the risk of market demand is lower than expected; the policy risk of influenza vaccine industry.

Investment suggestion: Hualan Vaccine is the leading enterprise of influenza vaccine in China, and the company opens the market with tetravalent influenza vaccine as the core. In the short term, the impact of the epidemic on the company is expected to be eliminated this year, and with the recovery of the pace of influenza vaccination, the company's performance is expected to recover significantly in the second half of the year. In the medium to long term, with the cultivation of the overall domestic influenza vaccine market, there is still room for improvement in China's vaccination rate. considering the company's production capacity and first-mover advantages, the domestic initial launch of the superimposed company's children's dosage form influenza vaccine is expected to gradually release its volume. We believe that the company's future performance will continue to grow steadily and with strong certainty. Therefore, we expect the company's annual net profit in 2023-24-25 to be 906 million / 1.138 billion / 1.382 billion yuan, respectively, corresponding to the EPS forecast of 1.51 / 1.90 and 2.30 yuan respectively. To sum up, we refer to comparable companies (Kingdick, Kangtai Biological, Zhifei Biological, Watson Biological, Conghua Biological, etc.) with an average Wind estimate of 26 times PE valuation in 2023. At the same time, considering that the company, as the leading enterprise of influenza vaccine, has obvious advantages in production capacity and first mover, with the future sales volume of tetanus, rabies vaccine and high-margin children's dosage form influenza vaccine, we think that the company's long-term growth is highly deterministic. Therefore, we give the company a valuation of 27 times PE in 2023, corresponding to a target price of 41 yuan. Cover for the first time, giving a "buy" rating.