1-3Q23 performance meets our expectations
The company announced 1-3Q23 results: revenue 15.743 billion yuan, year-on-year increase of 12.93% (retroactive adjustment); return to the mother net profit of 1.963 billion yuan, 39.70% year-on-year (retroactive adjustment), in line with our expectations.
Trend of development
The performance is in line with expectations, and the stock business continues to grow. According to the company announcement, the net profit of 3Q23 company is 560 million yuan, which is 3.46% higher than that of 3Q22 retroactive adjustment (540 million yuan). Considering that the net profit of 3Q22 company due to the increase of MSD down payment is about 129 million yuan, excluding the impact of down payment, the company's stock business still maintains a high growth rate. Among the main sub-sectors, orders and prices of major products such as Chuanning biological penicillin intermediates have maintained steady growth over the same period last year. According to the third quarterly report of Chuanning Biology, its 3Q23 revenue is 1.16 billion yuan (+ 21.8% yoy), and its net profit is 249 million yuan (+ 162%yoy).
The cost control is obvious and the cash flow is significantly improved. 1-3Q23 gross margin 52.9% (- 1.2ppt yoy), slightly lower The control of various expenses is obvious. The sales expenses of 1-3Q23 are 3.249 billion yuan (- 4.0% yoy), accounting for 20.6% of revenue (- 3.6ppt yoy), and the administrative expenses are 707 million yuan (- 18.3% yoy), accounting for 4.5% of income (- 1.7ppt yoy). Financial expenses benefit from the decline in the scale of interest-bearing liabilities and the increase in interest income. 1-3Q23 financial expenses 206 million yuan (- 41.1% yoy), accounting for 1.3% of income (- 1.2ppt yoy). The company's operating cash flow improved as a whole. The net operating cash flow of 1-3Q23 was 4.25 billion yuan, an increase of 119.12% over the same period last year.
The new drug has gradually entered the harvest period, and MSD has launched SKB264 international multicenter clinic. In August 2023, the company announced that its core product SKB264 (TROP2 ADC) has reached the main end point in the III phase of 3L + TNBC, and we expect it to start listing in the near future; in addition to TNBC, the III phase of SKB264 for EGFRm nsqNSCLC has also been enrolled, and we recommend paying attention to the follow-up declaration and indication expansion. In addition, according to the company announcement: another core product of the company, A166 (HER2 ADC), has submitted its NDA to the State Drug Administration in May 2023. If the review goes smoothly, we expect to be approved in China as soon as 2024. In addition to the domestic clinic, MSD has registered an international multicenter III phase of SKB264 monotherapy for EGFRm nsqNSCLC posterior line therapy, and plans to start enrollment in November 2023. We recommend that we pay attention to the follow-up progress of this clinic and more international clinical development.
Profit forecast and valuation
As the cost improvement is better than expected, we maintain the 2023 profit forecast and raise the 2024 homing net profit forecast by 3.4% to 2.58 billion yuan; the current share price corresponds to the price-to-earnings ratio of 18xx 2023 in 2024. Maintain the outperform industry rating, according to the SOTP law, maintain the target price of 40 yuan, corresponding to the previous stock price has 44% upward space.
Risk
The price of antibiotic intermediates declined; the release of new drugs fell short of expectations; and the progress of innovative drugs fell short of expectations.