1-3Q2023 results slightly lower than we expected
The company announced 1-3Q2023 performance: revenue 6.21 billion yuan, year-on-year +6.33%; net profit attributable to parent 72.
RMB 100 million yuan,-9.18% year-on-year; net profit of RMB 770 million yuan deducted,-8.29% year-on-year; slightly lower than our expectation, mainly due to the fluctuation of performance affected by centralized procurement of domestic preparations.
Trend of development
In Q3 of 2023, the company's revenue was RMB 1.91 billion yuan,-5.02% year-on-year, net profit attributable to parent company was RMB 150 million yuan,-32.57% year-on-year, net profit deducted from non-profit was RMB 150 million yuan,-42.34% year-on-year, gross profit margin was 56.33%, which decreased significantly compared with 61.3% in Q2 of 2023 and 60.24% in Q3 of 2022. We judged that the performance change was mainly due to the impact of centralized procurement of domestic preparations.
API continued to tap market potential, and the reform of drug product sales management achieved remarkable results. As of 1H2023, 12 varieties of API have passed the approval/review, 21 new product registration applications have been completed, 60 API registration numbers have been reviewed and approved by the State Food and Drug Administration, 80 DMF numbers have been filed with FDA, and 51 products have obtained European CEP certification. For domestic preparations, as of 1H2023, there are 11 newly approved products, 8 newly applied products have been completed, and at the same time, more than 60 products are under development, and 50 products have been approved by the State Food and Drug Administration and passed consistency evaluation. As of 1H2023, 4 US ANDA numbers (including temporary approval numbers) have been obtained, 2 new product applications have been completed, and a total of 79 products of the company have obtained US ANDA numbers (excluding temporary approval numbers).
It has the advantage of large-scale preparation and API production capacity, and has formed an independent marketing system covering both at home and abroad. 1) production capacity: by the end of June 2023, the company has passed a number of international mainstream official quality system certification in China, Europe and the United States, and has anti-tumor solid preparation workshop, water needle workshop and freeze-dried powder injection workshop. 2) sales end: by the end of June 2023, the company's sales area covers 31 provinces, municipalities and autonomous regions across the country, involving a total of 28 preparation products selected in the "National centralized Purchasing and National Mining Agreement expired provinces and cities". It has set up overseas offices in 14 countries and subsidiaries in the United States, Germany and other places.
Profit forecast and valuation
Due to the impact of centralized procurement of domestic preparations and intensified competition in the API industry, we lowered our net profit for 2023/2024 by 24.3%/28.3% to RMB1.119 billion/RMB1.422 billion. The current share price corresponds to a 2023/2024 price-earnings ratio of 21.4 times/16.9 times. To maintain the outperforming industry rating, considering the recent systematic upward revision of the pharmaceutical sector, we lowered the target price by 7.8% to 20.20 yuan corresponding to 26.8 times 2023 P/E ratio and 21.1 times 2024 P/E ratio, with 24.9% upside compared with the current share price.
Risk
New product R & D registration risk, quality control risk, safety and environmental protection risk, industry policy change risk, main API product price fluctuation risk, exchange rate change risk.