Main points of investment:

The main business of steroid raw materials of the company has increased steadily, and the integrated layout of the industrial chain has been initially completed. The company is a leading domestic supplier of steroid raw materials, laying out high-end steroid intermediates, APIs and finished preparations. The company's revenue and profits have maintained growth in recent years, with revenue of 1.312 billion yuan (+ 9.10%) and net profit of 42 million yuan (+ 15.95%) in 2022. In the first three quarters of 2023, the revenue was 923 million yuan (- 1.04%), and the net profit was 61 million yuan (48.06%).

The market of steroid drugs has grown steadily, and the downstream preparation projects have been distributed. According to the company announcement, the sales scale of steroid drugs continues to grow, driving the upstream demand of the steroid industry. The layout of the company's five steroidal mother nuclear intermediates is perfect, and the capacity utilization of steroidal materials is high. The company is also speeding up the expansion of high-end intermediates such as 8DM and DB11. The increase in the proportion of advanced intermediates business drives the company's steroid drug gross profit margin to continue to improve. The company extends to the field of finished preparations through the merger and acquisition of Lisapharma. The company now has a production license for a variety of APIs and a reserve of more than 20 preparations. At the same time, through the construction of 8 types of preparation capacity.

It intends to acquire a variety of potential preparations from Yingu Pharmaceutical, and 1.1 new drugs will enhance its innovative quality. Recently, the company announced that it intends to acquire 60% of Yingu Pharmaceutical, whose products include inhaled ambroxol hydrochloride solution, phenycloquine bromide nasal spray, salmon calcitonin injection and nasal spray, with good market potential. 1.1 the new drug phenycloquine bromide nasal spray is a non-hormonal drug for the treatment of allergic rhinitis and has been included in the guidelines and health insurance. Inhaled ambroxol hydrochloride solution has been put on the market, the current competition pattern is 1: 3, has passed the examination of the form of health insurance, and is expected to enter the health insurance through national negotiations. If the merger and acquisition is successful, it will realize the complementary advantages and industrial coordination of both sides, and improve the production capacity of the whole industrial chain of the company.

Profit forecast, valuation analysis and investment suggestions: excluding the factors of Yingu M & A, we expect the company's operating income of 1.377 billion yuan, 1.508 billion yuan and 1.648 billion yuan in 2023 to 2025, and the return net profit of 63 million yuan, 75 million yuan and 87 million yuan, corresponding to EPS of 0.33,0.39,0.46 yuan, and PE of 52.11,43.67,37.38 times. We believe that the company is a leading supplier of steroid raw materials in China, has established an integrated upgrading strategy of intermediates, APIs and preparations, and has a variety of product reserves in respiratory high-end characteristic APIs. Seven products, including fluticasone propionate, triamcinolone acetonide and budesonide, have obtained production licenses and are building preparation production lines. The industrial pattern of the domestic steroid drug industry is stable, the company's main business is steadily increasing, and there is room for further optimization of the main business assets. Yingu Pharmaceutical, the subject of the proposed merger and acquisition, has three listed products, and the sales of salmon calcitonin preparations have achieved steady sales growth. 1.1 new drug phenycloquine bromide nasal spray has entered the guidelines for the diagnosis and treatment of allergic rhinitis and entered medical insurance through national negotiations. it is expected to achieve rapid growth by relying on the characteristics of non-hormone differentiation and the advantage of significantly improving the symptoms of snot, through single or combined use to meet the clinical unmet demand. At the same time, the indication of post-cold rhinitis has been added, and the clinic has entered the third phase. Inhaled ambroxol has passed the state review and is expected to enter health insurance with the potential for rapid release. At the same time, Yinggu Pharmaceutical and the company have strong synergy in channels, sales team, product coordination and industrial chain, and we are optimistic about the development of the company. For the first time, it has been given a "overweight-B" rating.

Risk tips: including but not limited to: the risk that the upgrading of the industrial chain is not up to expectations; the market risk of veterinary drug business; the risk that M & An integration can not be completed smoothly; the risk of domestic and foreign market competition; the risk of R & D failure or the risk that the progress is not as expected.