3Q23 revenue and net profit increased significantly year-on-year

The company announced that revenue, net profit from mother, and net profit after deduction were 17.2, 6.3, and 550 million yuan respectively from 1 to 3Q23, +10%, +25%, and +22% year-on-year. Among them, 3Q23 achieved revenue, net profit from mother, and net profit after deduction were +214%, +153%, and +164% compared to the same period, mainly due to the return to normal pace of influenza vaccination and adjustments in the pace of batch issuance after liberalization. Based on high influenza epidemic expectations throughout the year (low pre-emptive immunization among the population, high influenza A prevalence in 1Q23), it is expected to catalyze influenza vaccination demand. We expect the company to return a net profit of 9/1,19/1.5 billion yuan in 2023-25. We gave the company a PE valuation of 25x in '23 (comparable company Wind unanimously expected the average PE valuation to be 32x, and a certain discount was given considering the uncertainty of influenza vaccine sales), and the target price was 37.68 yuan (previous value was 40.70 yuan), maintaining the “buy” rating.

Influenza vaccine: batch issuance is the same as the same period last year. Annual demand recovery We expect the company's 1 to 3Q23 influenza vaccine revenue to 1.7 billion yuan (1 to 3Q22 over 1.5 billion yuan), sales volume of about 14 million units (IIV43 million doses, IIV3 1 million). We expect influenza vaccine sales in 23 to exceed 20 million units (sales volume 14.54 million in 2022): 1) The prevalence of the past two years and low vaccination rates have caused insufficient pre-immunization among the population. Combined with population activity, the influenza epidemic will be under-immunized. In week 42, the ILI% of the southern/northern sentinel hospitals were 5.4%/2.9%, respectively, and the popularity increased marginally. We expect the prevalence of respiratory viruses such as influenza to increase in 2023, and high prevalence expectations+disease control emphasis are expected to promote vaccination; 2) To October 27, the company issued 94 batches of IIV, and we estimate about 24 to 25 million doses (IIV4 adult/IIV child/IIV3, 19.50, 400/1.5 million, respectively).

New products are expected to contribute incrementally, and the research pipeline continues to advance

1) Vero cell rabies vaccine and tetanus vaccine 2M23 were approved. The former has fewer DNA residues and is more safe, and has both a 4-dose method and a 5-dose method. The latter is purified and then detoxified, and has better immunogenicity. The two vaccines have focused on promoting local recruitment for 23 years. In the future, it is expected that MENAc will be reported in 2023, and dTAP will launch phase III clinical trials; 3) The company has established an mRNA R&D platform to actively explore mRNA influenza vaccine research and development It is currently in the early stages of research and development.

Financial indicators are steady, and equity incentives stimulate internal vitality

1) The R&D fee rate from 1 to 3Q23 was 2.9 pct to 4.2%, mainly due to a reduction in direct investment and clinical trial testing fees; 2) Operating cash flow reached 480 million (same period in '22 - 35 million), mainly due to increased sales payback. 3) The company's equity incentives have been granted for the first time (3.4 million shares were granted for the first time, accounting for 0.85% of the company's total share capital, with another 600,000 shares reserved). The award targets 28 people, including directors, executives and core executives, was granted at a price of 24.42 yuan. The performance assessment target is 2021 as the benchmark. The growth rate of non-net profit from 2023 to 25 is not less than 40%/80%/100%, that is, 82/10.5/1.17 billion yuan in non-net profit from 23 to 25. We believe that the company's equity incentive plan is set up reasonably, covers the main core backbone, and helps stimulate internal vitality.

Risk warning: The prevalence of influenza and product sales fall short of expectations, R&D progress falls short of expectations, the development of COVID-19 and the risk of changes in prevention and control policies.