Main points of investment

Financial performance: month-on-month growth in income and return net profit

2023Q1-Q3 realized income of 1.352 billion yuan (YOY-1.35%) and net profit of 404 million yuan (YOY-11.23%).

In a single quarter, 2023Q3 achieved an income of 518 million yuan (YOY-9.89%, QOQ+12.44%), a net profit of 134 million yuan (YOY-19.96%, QOQ+2.16%), and a net profit of 116 million yuan (YOY-30.29%, QOQ+8.12%). Compared with the previous quarter, the company's income and profit increased.

Profitability: product structure, consolidation affect gross profit margin, expect to gradually improve 2023Q3 sales gross margin of 64.38% (year-on-year decline of 13.84pct), net sales margin of 25.93% (year-on-year decline of 3.26pct). On the expense side, the 2023Q3 sales expense rate is 10.1% (down 1.97pct from the same period last year), the R & D expense rate is 18.94% (down 2.93pct from the same period last year), the management expense rate is 6.75% (up 0.65pct year-on-year), and the financial expense rate is 2.39% (down 2.06pct from the same period last year, mainly due to the capitalization of interest costs on special loans). We believe that the product structure, the impact of consolidation and the promotion of collection may disturb the gross profit margin of the company to a certain extent, and the net profit margin is expected to improve gradually with the improvement of the variety echelon and the promotion of sales reform.

Outlook: overseas varieties are more abundant, optimistic about the preparation internationalization elastic 2023Q3 company announcement Hainan Puli and Zhejiang Puli respectively passed the FDA audit. According to the rhythm of variety registration, nine varieties, such as Q3 iodoparanol injection (intravascular administration), fluconazole dry suspension, etepa peptide injection, bivalirudin for injection, azithromycin dry suspension, levetiracetam injection, calcium folinate for injection, daptomycin for injection, ganciclovir for injection, etc., have been licensed abroad. Fluconazole dry suspension and voriconazole dry suspension obtained domestic drug registration approval. According to the company's report, "there are 67 products under review at home and abroad in the field of generic drug research and development", we expect that with the increase of product approval and the enhancement of large-scale effect, it is expected to accelerate the growth of preparation export income.

Profit forecast and valuation

We estimate that the company's EPS for 2023-2025 will be 1.06 pounds per share, respectively, and the closing price on October 24, 2023 will correspond to 19 times PE in 2023 (17 times in 2024). In view of the company's domestic preparation business, we are optimistic about the establishment and layout of the company in barrier dosage forms, improved dosage forms and other areas. under the adjustment of domestic preparation sales channels, we expect the efficiency of cash flow to be gradually improved; for the company's preparation export business, we believe that with the company's preparation varieties approved to accelerate, Hainan and other production capacity release & inspection, preparation export revenue is expected to increase steadily. Based on the company's accumulation in high-end manufacturing areas such as delivery design, barrier preparations and compliance production, we are optimistic about the company's expansion potential in high-barrier raw materials, production R & D cooperation and other areas to maintain the "overweight" rating.

Risk hint

Production safety accident and quality risk; core preparation variety flow standard or sales less than expected risk; exchange rate fluctuation risk; order delivery volatility risk; medical regulatory policy change risk.