Core viewpoints

On October 26, the company released a report for the first three quarters of 2023, saying that the decline in sales of some products led to a decline in revenue, while the increase in management and R & D expenses affected the profit end. The company's tetanus vaccine 23Q3 continues to release steadily, ensuring sustained growth in performance; AC-Hib triple vaccine has entered the production registration stage, which is expected to bring new performance increments after listing; recombinant Staphylococcus aureus vaccine, as the exclusive domestic innovation, the III phase clinical progress is smooth and the market prospect is broad. In addition, a number of innovative vaccines are being developed, which are expected to continue to improve the competitiveness of the company.

Event

The company released its third quarterly report for 2023, and its results were lower than expected.

On October 26, the company released its report for the first three quarters of 2023, achieving: 1) operating income of 352 million yuan, down 4.98% from the same period last year; 2) net profit of 30 million yuan, down 24.62% from the same period last year; 3) deducting non-return net profit of 19 million yuan, down 45.89% from the same period last year; 4) basic earnings per share of 0.07 yuan. The results were lower than expected.

Brief comment

23Q3 income end is under short-term pressure, share payment and R & D expenses affect profits. In the third quarter of 2023, the company achieved operating income of 119 million yuan, down 13.74% from the same period last year; net profit from home was 2 million yuan, down 80.98% from the same period last year; and net profit from non-return was-1 million yuan, down 113.03% from the same period last year. The revenue side of 23Q3 declined and its performance was lower than expected, mainly due to the decline in sales of AC conjugate vaccine and Hib vaccine compared with the same period last year. The decline in the profit end compared with the same period last year is mainly due to: 1) a decline in the revenue side; 2) an increase in management expenses, including a larger increase in share payment fees; and 3) an increase in the rate of R & D expenses. 23Q3's non-recurrent profit and loss totaled 3 million yuan, mainly for government subsidies included in the current profit and loss, excluding non-net profit resulting in loss.

Tetanus vaccine has been released steadily and AC-Hib triple vaccine will be put on the market soon. From the perspective of batch issuance, 23Q3 Company absorbed tetanus vaccine in 10 batches (- 23%), AC meningitis polysaccharide conjugate vaccine in 7 batches (+ 40%), and Hib conjugate vaccine in 2 batches (not issued in the same period last year). Adsorbed tetanus vaccine as the company's main product, 23Q3 continues to steadily increase the pace. In recent years, with the consensus of industry experts, prevention standards, guidelines for use, diagnosis and treatment standards and other documents have been issued, emphasizing the importance of active immunization against tetanus to prevent tetanus, product sales are expected to continue to grow in the future. AC-Hib combined vaccine can effectively reduce the number of vaccination, and has the advantages of good compliance of vaccinators and high performance-to-price ratio. at present, it has entered the stage of production registration, and there is no product sales in China. It is expected that it will bring new performance growth points for the company after listing.

The R & D pipeline continues to advance and looks forward to the progress of clinical phase III trials of Staphylococcus aureus. The recombinant Staphylococcus aureus vaccine jointly developed by the company and Army military Medical University has entered the phase Ⅲ clinical trial. It is the only recombinant Staphylococcus aureus vaccine to carry out clinical research in China, and there are no similar products on the market worldwide. The company expects to conduct an interim analysis in the middle of the clinical trial, specifically in accordance with the final communication with CDE, when the company can look forward to the results of the mid-term analysis. In addition, the company has tetravalent influenza virus cleavage vaccine (MDCK cells), group A streptococcal vaccine, oral recombinant Helicobacter pylori vaccine (E. coli), Acinetobacter baumannii recombinant subunit vaccine and other products under research, which is expected to continue to improve the company's competitiveness in the future.

Research and development costs have increased significantly, and other financial indicators remain stable

In the first three quarters of 2023, the company's gross profit margin was 92.88% (+ 0.22pp), which remained basically stable. In the first three quarters, the company's sales expenses were 160 million yuan (- 5.07%), the sales expense rate was 45.50% (- 0.04pp), the management expenses were 58 million yuan (+ 25.86%), the management expense rate was 16.51% (+ 4.05pp), the R & D expenses were 80 million yuan (+ 14.42%), the R & D expense rate was 22.79% (+ 3.87pp), the financial expenses was 3 million yuan (+ 181.73%), and the financial expense rate was 0.83% (+ 0.55pp). The increase in management expense rate is mainly due to the larger increase in share payment fees generated by the company's equity incentive program, and the increase in R & D expense rate is mainly due to the company's continued increase in R & D investment. The net cash flow generated by the company's operating activities in the first three quarters was-10 million, compared with-128 million in the same period last year, mainly due to better sales rebates. Other financial indicators are basically normal.

Profit Forecast and Investment rating

As a domestic innovative vaccine R & D enterprise, we continue to be optimistic about the company's development prospects: adsorbed tetanus vaccine is expected to continue to release, driving the company's performance growth; AC-Hib triple vaccine has entered the production registration stage, which is expected to bring new performance increments for the company after listing; recombinant Staphylococcus aureus vaccine, as the exclusive domestic innovation variety, III phase clinical progress is smooth, the market prospect is broad. In addition, a number of innovative vaccine products are under development, which is expected to continue to improve the competitiveness of the company.

We estimate that the company's operating income from 2023 to 2025 will be 562 million yuan, 748 million yuan and 928 million yuan respectively, an increase of 2.7%, 33.1% and 24.0% respectively over the same period last year, and the net profit will be 47 million yuan, 93 million yuan and 147 million yuan respectively, up 76.2%, 99.4% and 57.6% respectively over the same period last year. The equivalent EPS was 0.12,0.23,0.36 yuan per share respectively, and the corresponding PE was 158.7X, 79.6X and 50.5X, respectively. We use DCF valuation, the reasonable market value of the company is 10.003 billion yuan, corresponding to the target price of 24.63 yuan, maintain the buy rating.

Risk analysis.

1. The research and development progress is lower than the expected risk: product research and development is very important for the future development of vaccine enterprises. The company has a number of vaccines in the pipeline, in the pipeline research progress is lower than expected may affect the enterprise's future sales expectations, and then affect the valuation.

2. the risk that the sales of vaccine products are not up to expectations: adsorbing tetanus vaccine is the company's main product, if the product sales do not meet expectations, it will affect the company's revenue and profit expectations, and then affect the valuation.

3. Compliance risk of vaccine management: because of its special biological characteristics, the regulatory requirements of vaccines are more stringent and the scope of management is more extensive. If the vaccine enterprise violates the business compliance requirements, it will not only adversely affect the operation and production of the enterprise itself, but also cause fluctuations in the vaccine industry.