Domestic sales of PCV13 and quadruple vaccines were slightly lower than expected due to a decline in the number of births and increased competition. We lowered the company's 2023-2025 net profit forecast to 967 million/1.26 billion/1.603 billion yuan (The original forecast is 1.191 billion/1.596 billion/2.121 billion yuan), corresponding to EPS forecast of 0.87/1.13/1.44 yuan from 2023 to 2025 respectively.(The original forecast is 1.07/1.43/1.90 yuan), referring to the valuation of comparable companies (based on the forecast of CITIC Securities Research Department), as of October 30, 2023, the average PE of Baike Bio and Watson Bio in 2023 is 43 times. In view of the fact that the Company's products are greatly affected by the decline of newborns, we give the Company 40 times PE in 2023, maintain the target price of 35 yuan/share and maintain the "Buy" rating.
Q3 performance basically met expectations, profit turned significantly. The company realized revenue of RMB 2.464 billion yuan from Q1 to Q3 in 2023, with a year-on-year decrease of 3.92%; net profit attributable to parent was RMB 697 million yuan, with a year-on-year growth of 243.13%; net profit deducted from non-parent was RMB 599 million yuan, with a year-on-year growth of 316.82%; net cash flow from operating activities was RMB 626 million yuan, with a year-on-year growth of 139.92%. In a single quarter, 2023Q3 Company realized revenue, net profit and net profit deducted from non-parent respectively of RMB 734 million yuan (year-on-year-0.45%), RMB 187 million yuan (year-on-year +125.81%) and RMB 169 million yuan (year-on-year +194.96%). The decrease in revenue was mainly due to the Company's sales of new crown vaccine in the same period last year. The Company provided a large impairment amount for the same period last year, resulting in a large increase in net profit for the period.
The Group's revenue is mainly attributable to the following factors: The gross profit/net profit of the Company in Q1-Q3 of 2023 was-0.97/+20.36PCTs to 86.05%/28.28% year-on-year respectively, and the sales/management/R & D/financial expense ratio was-0.26/-0.33/-8.15/+0.77PCT to 34.31%/6.95%/14.55%/-0.08% year-on-year respectively. The R & D expense ratio decreased mainly due to the clinical phase III expenses of Xinguan vaccine in the same period last year. In a single quarter, the gross profit margin of the Company in Q3 of 2023 was 84.41%(year-on-year-3.45PCTs), the net profit margin was 25.43%(year-on-year +14.22 PCTs), the sales expense ratio was 33.94%(year-on-year-3.99 PCTs), the management expense ratio was 9.72%(year-on-year +1.81PCTs), the R & D expense ratio was 15.49%(year-on-year-17.18 PCTs), and the financial expense ratio was-0.07%(year-on-year +0.38%). In Q1-Q3 of 2022, provision for impairment of assets related to Xinguan vaccine was withdrawn, resulting in a loss of profits of the current year. The asset impairment loss in the same period of this year was-44 million yuan, which was significantly reduced compared with-484 million yuan in the same period last year, and the impairment impact of assets related to Xinguan vaccine was gradually eliminated.
Three varieties create core growth engines, PCV13 grows rapidly. From Q1 to Q3 in 2023, the total proportion of 13-valent pneumonia vaccine, quadruple vaccine and hepatitis B vaccine of the company exceeds 90%, among which PCV13 is expected to account for about 40% of the total revenue in the first three quarters. 13-valent pneumonia vaccine is one of the best-selling vaccines in the world at present. We judge that there is a market scale of more than 10 billion yuan in China, and the company is the second domestic enterprise to list 13-valent pneumonia vaccine in China. We estimate that quadruple vaccine (cell-free DPT Haemophilus influenzae type b combination vaccine) accounts for about 20% of total revenue in the first three quarters. Quadruple vaccine can significantly reduce the number of vaccination needles and has broad market prospects.
Pipeline reserves are abundant, diploid crazy seedlings have been approved for marketing. According to the announcement of the Company, on September 15,2023, the Company's lyophilized rabies vaccine for human use (human diploid cells) was approved for marketing, becoming the second human diploid cell rabies vaccine manufacturer in China and becoming a new performance increment of the Company. Human diploid cell vaccine is a vaccine cultured and prepared from healthy human embryonic lung fibroblasts. It has no animal cell-derived protein and heterologous DNA residue. It has high safety and is recommended as "gold standard" vaccine by WHO. In addition, the freeze-dried live attenuated varicella vaccine has completed the registration site inspection and GMP compliance inspection, and the company is expected to be marketed in early 2024. It was announced on September 22,2023 that the Company has completed the preparation for Phase I clinical trial of cell-free DPT inactivated poliomyelitis and Haemophilus influenzae type b combination vaccine (five-combination vaccine) and officially started Phase I clinical trial. At present, only imported products are available for five-combination vaccine marketed in China, and the Company is expected to break the import monopoly pattern.
PCV13 obtained Indonesian marketing authorization, and the internationalization strategy was steadily advanced. On October 26,2023, the Company obtained the Marketing License of 13-valent pneumococcal polysaccharide conjugate vaccine issued by Indonesia Food and Drug Administration, indicating that the vaccine has met the basic conditions for sale in Indonesia market, and the Company expects to produce sales in 2024. In addition, the company has successively signed cooperation agreements with Philippines, Indonesia, Pakistan, Saudi Arabia, India and other partners to continuously expand the overseas distribution of 13-valent pneumococcal polysaccharide conjugate vaccine, 23-valent pneumococcal polysaccharide vaccine and other varieties, and steadily promote the internationalization strategy. According to the company's mid-term report in 2023, the company's adenovirus new crown vaccine, quadruple vaccine, 23-valent pneumonia vaccine, leprosy vaccine, etc. have been exported in Indonesia, Bangladesh, Uzbekistan, Pakistan and other countries. The internationalization strategy of the company has been steadily promoted, and the vaccine has sailed far away.
Risk factors: sales of 13-valent pneumonia vaccine were less than expected; sales of freeze-dried rabies vaccine for human use were less than expected; sales of cell-free DPT-Hib combination vaccine were less than expected; competition increased risk.
Earnings Forecast, Valuation and Rating: Domestic sales of PCV13 and quadruple vaccine were slightly lower than expected due to the decline in the number of births and increased competition. We lowered the company's 2023-2025 net profit forecast to 967 million/1.26 billion/1.603 billion yuan (The original forecast is 1.191 billion/1.596 billion/2.121 billion yuan), corresponding to EPS forecast of 0.87/1.13/1.44 yuan from 2023 to 2025 respectively.(The original forecast is 1.07/1.43/1.90 yuan), referring to the valuation of comparable companies (based on the forecast of CITIC Securities Research Department), as of October 30, 2023, the average PE of Baike Bio and Watson Bio in 2023 is 43 times. In view of the fact that the Company's products are greatly affected by the decline of newborns, we give the Company 40 times PE in 2023, maintain the target price of 35 yuan/share and maintain the "Buy" rating.