1-3Q23 performance meets our expectations

The company announced its results for the first three quarters of 2023: revenue of 2.09 billion yuan, down 0.4% from the same period last year; net profit of 760 million yuan, corresponding to 0.38 yuan per share, down 45.8% from the same period last year, mainly due to the impact of 912 million yuan of investment income in the same period last year; deducting non-return net profit of 757 million yuan, an increase of 14.5% over the same period last year, in line with our expectations.

Trend of development

The company's insulin business is growing healthily. In the third quarter of 2023, the company achieved an income of 725 million yuan, an increase of 1.9 percent over the same period last year, an increase of 3.5 percent over the previous year, and a net profit of 275 million yuan, an increase of 25.0 percent over the same period last year, deducting 277 million yuan of non-return net profit, an increase of 26.2 percent over the same period last year. The company announced that its human insulin sales continued to increase steadily in the first three quarters of 2023, with sales of insulin analogues still growing rapidly, with insulin analogues accounting for more than 20% of total revenue, compared with the same period in 2021. Increase by more than 10 percentage points. We believe that the optimization of product structure will help to further improve the company's profit margin.

The company's gross profit margin increased and sales management expenses decreased compared with the same period last year. In the first three quarters of 2023, the company's gross profit margin was 78.8%, up 0.3 percentage points from a year earlier. The rate of sales expenses was 30.3%, down 2.4 percentage points from the same period last year. The rate of administrative expenses was 5.7%, down 0.7 percentage points from the same period last year.

The research and development of pipelines in the field of metabolic diseases has been continuously advanced. By October 30, 2023, the company announced that the oral small molecule GLP-1RA application for a class of new drugs had been accepted; the German phase I clinical trial of soluble gout Laiprost double insulin injection had reached the main end point; the clinical phase IIa trial of gout new drug URAT1 inhibitors had been completed and blinded; and the final phase I clinical trial of potential First-in-class XO/URAT1 inhibitors in gout field had been completed.

Expand the sea territory and lay out the American insulin market. The company announced that in September 2023, it signed a strategic cooperation agreement with Jianyou Co., Ltd. on the entry of three kinds of insulin injection into the United States market, to jointly carry out the development and production of the above three kinds of insulin. We believe that the company's overseas business is expected to open up new growth points.

Profit forecast and valuation

We keep the net profit per share forecast for 2023max at 0.54 yuan / 0.65 yuan per share in 2024. The current share price corresponds to a price-to-earnings ratio of 20.6 times 2024 / 17.0 times 2024. We maintain an outperform industry rating and target price of 13.24 yuan, corresponding to a price-to-earnings ratio of 24.6 times 2024 / 20.4 times 2024, which is 19.4% higher than the current stock price.

Risk

The quantity of insulin products is lower than expected, and the progress of research and development is not as expected.