Under the influence of many factors, such as the decline of newborns, the intensification of PCV13 competition and the intensification of competition in the HPV vaccine market, 2023Q3's performance fell short of our expectations. We slightly lowered the company's annual EPS forecast on 2023-24-25 to 0.57pm 0.67pm 0.77 yuan (the original forecast was 0.67pm 0.92 yuan), and the current stock price corresponds to PE 40-34-30 times. With reference to the comparable company valuation (based on the prediction of CITIC Research Department), as of October 30, 2023, the average PE of Baike Biological and Kangtai Biological in 2023 will be 40 times. Considering that the company is the only listed vaccine company in China with two major varieties of PCV13 and bivalent HPV vaccine, and PCV13 will gradually achieve multi-national exports, at the same time, the active layout of mRNA technology platform should enjoy a certain valuation premium. We valued the company at 44x PE in 2023 and lowered the target price to 25 yuan (the original target price was 27 yuan), maintaining the "overweight" rating.

Q3 performance declined month-on-month, and increased competition led to lower-than-expected sales. The company's 2023Q1-Q3 realized revenue of 3.158 billion yuan, down 14.79% from the same period last year; net profit from home was 553 million yuan, up 4.14% from the same period last year; net profit from non-return was 558 million yuan, down 17.69% from the same period last year; and net cash flow from operating activities was 861 million yuan, down 1.19% from the same period last year. In a single quarter, 2023Q3 realized revenue, net profit and non-return net profit of 990 million yuan (year-on-year-27.08%, month-on-month-25.78%) / 98 million yuan (year-on-year-11.1%, month-on-month-65.35%) / 136 million yuan (year-on-year-30.93%). The company's revenue fell in the first three quarters of 2023 compared with the same period last year, Q3 revenue declined month-on-month, and the performance was lower than expected. Main departments: the decline in the number of ① newborns exceeded expectations, while the market competition intensified, the company's 13-valent pneumonia vaccine products were under pressure; ② Merck & Co Inc 9-valent HPV vaccine was approved to extend the age to people aged 9-45 years old, and the company's bivalent HPV vaccine faced intensified competition in the self-financed market.

The investment in R & D remains high, and the sales cost has dropped. The company's 2023Q1-Q3 gross profit / net profit is respectively year-on-year-2.57/+3.5PCTs to 85.71% to 22.08%, and sales / management / R & D / financial expense rates are respectively year-on-year-3.75 to 0.71, to 0.12, 0.23, PCTs to 36.2, 5.72, 18.16, 1.68. On a quarterly basis, the company's 2023Q3 gross profit margin is 81.96% (year-on-7.62PCTs), net profit rate is 13.6% (year-on-0.15PCTs), sales expense rate is 36.38% (year-on-year-6.12PCTs), management expense rate is 6.03% (year-on-year + 0.74PCTs), R & D expense rate is 21.03% (year-on-year + 0.63PCTs), and financial expense rate is-1.81% (year-on-0.19PCTs). 2023Q1-Q3 invested 573 million yuan in R & D, of which Q3 invested 208 million in R & D in a single quarter. The company maintains a high R & D intensity, which contributes to the rapid development of new products.

The issuance of product batches has been carried out steadily, and dual-price HPV has made a breakthrough in the government's project to benefit the people. A total of 2878 million doses were issued for 8 vaccine products (12 specifications) listed by 2023Q1-Q3, an increase of 98.18% over the same period last year. Among them, 579.52 million doses of 13-valent pneumonia conjugate vaccine were issued,-4.5% compared with the same period last year, 475.36 million doses of bivalent HPV vaccine were issued, + 127.61% last year, and 85.25 million doses of DPT vaccine were issued, which was-56.90% of the same period last year. Hib vaccine (9284 million doses), AC conjugate vaccine (146.72 million doses), ACYW135 polysaccharide vaccine (199.61 million doses), AC polysaccharide vaccine (1137.54 million doses).

The company's non-immunization program vaccine has completed access to 31 provinces / cities across the country, reaching a total of about 3000 district and county disease control customers and more than 30, 000 vaccination clinics. According to the 2023Q3 quarterly report, the company has maintained the first domestic market share of 13-valent pneumonia conjugate vaccine, and the bivalent HPV vaccine has made a gradual breakthrough in the government Huimin procurement market. from January to September 2023, the company completed the supply of vaccine products to more than 2350 district and county disease control units, with a target district and county coverage rate of 78.5%. The company has made steady progress in the research and development, clinical trials and registration of its products under development. As of the 2023Q3 quarter, the company has 8 vaccine projects under study, of which 4 are in clinical III phase (including 9-valent HPV, ACYW135 meningococcal polysaccharide conjugate vaccine, COVID-19 and COVID-19 mutant mRNA vaccine), and 2 are in clinical phase II and phase I.

The company is also actively exploring the application prospect of mRNA vaccine in the field of tumor therapy.

PCV13 Indonesia has been approved for listing, and the progress of internationalization has been further accelerated. According to the announcement of October 26, 2023, the company's 13-valent pneumococcal polysaccharide conjugate vaccine was granted a "listing license" issued by the Indonesian Food and Drug Administration, which is another important milestone in the company's international strategy. it is expected to bring new growth points for the company's international market sales. According to the company's three-quarter report in 2023, the purchase order for 2023Q3's export of 13-price pneumonia conjugate vaccine to Morogo is recognized. The company continues to deliver some of the meningococcal group A meningococcal polysaccharide vaccines used in the Immunization Program in Egypt for its National expanded Immunization Program (EPI), while the company's 23-valent pneumonia vaccine has been exported to the Indian market for the first time. As of September 30, 2023, the company's products have been exported to 18 countries or regions, covering Southeast Asia, South Asia, Central Asia, Africa, America and other regional markets. The company continues to promote the internationalization strategy, and the international market is expected to contribute significant revenue to the company in the future.

Risk factors: sales of the company's main vaccine products (13-valent pneumonia vaccine, bivalent HPV vaccine), research and development (9-valent HPV vaccine, mRNA vaccine) were less than expected, competition intensified risks, and epidemiological trends exceeded expectations.

Earnings forecast, valuation and rating: due to the decline in newborns, resulting in increased competition in PCV13, increased competition in the HPV vaccine market and other factors, 2023Q3's performance was lower than our expectations. We slightly lowered the company's annual EPS forecast in 2023-24-25 to 0.57max 0.67xpx 0.77 yuan (the original forecast was 0.67xpx 0.92 yuan), and the current share price corresponds to PE 40-34-30 times. With reference to the comparable company valuation (based on the prediction of CITIC Research Department), as of October 30, 2023, the average PE of Baike Biological and Kangtai Biological in 2023 will be 40 times. Considering that the company is the only listed vaccine company in China with two major varieties of PCV13 and bivalent HPV vaccine, and PCV13 will gradually achieve multi-national exports, at the same time, the active layout of mRNA technology platform should enjoy a certain valuation premium. We valued the company at 44x PE in 2023 and lowered the target price to 25 yuan (the original target price was 27 yuan), maintaining the "overweight" rating.