The company's 2023Q3 performance is in line with our expectations. Sales of the second and third generation islets are growing; the R&D pipeline is progressing in an orderly manner, and the internationalization process is progressing steadily, which is expected to become a new driving force for long-term development; all cost rates in 2023Q1-3 have been reduced, and overall control is good. In summary, considering the company's long-term development potential, the company was given 25 times PE in 2023, corresponding to the target price of 14 yuan, maintaining the “buy” rating.
The company's 2023Q3 performance is in line with expectations. In 2023Q1-3, the company achieved revenue, net profit, and deducted non-net profit of 2,091 billion yuan, 760 million yuan, and 757 million yuan, respectively, -0.36%, -45.81%, and +14.54%. Among them, 2023Q3 achieved revenue, net profit, and non-net profit of 725 million yuan, 277 million yuan, and 277 million yuan, +1.92%, +25.04%, and +26.19% over the same period, up 3.45%/17.49%/19.09% month-on-month. The sharp decline in the company's net profit in the first three quarters of 2023 was due to the reduction of the company's holdings in Tebao Biotech's equity during the same period last year, and the non-performance side was in line with expectations.
The company's second-generation and third-generation insulin levels are good, and the proportion of third-generation insulin continues to increase. After collection, the company released a good amount of insulin preparations. Among them, sales of human insulin increased steadily, and sales of insulin analogues grew rapidly. We expect sales of insulin analogues to increase by more than 50% year-on-year in the first three quarters of 2023. With the release of insulin analogues, the company's product structure continues to be optimized. According to the company's official WeChat account, the revenue of insulin analogues in the first three quarters of 2023 accounted for more than 20% of total revenue, an increase of more than 10 pcTS compared with the same period in 2021.
The R&D pipeline is advancing at an accelerated pace, and the overseas layout is progressing well. The company's 2023Q1-3 R&D expenses are 66 million yuan, -41.37% over the same period last year. We expect that this is mainly due to R&D projects being included in development expenses because they have reached capitalization conditions one after another. The company's 23Q1-3 R&D expenditure rate is -2.20pcts year on year, and R&D expenses are well controlled. Thanks to continuous R&D investment, the company's projects in the field of diabetes and other treatment fields have progressed. Furthermore, in terms of international business, the company is also making steady progress. According to the company's official WeChat account:
——The innovative pipeline is progressing well, and the company's clinical application for oral GLP-1RA has been accepted; the phase I clinical trial of the soluble glycine lyprol double insulin injection in Germany has reached the main clinical end point; the URAT1 inhibitor has completed the phase IIa database lock and elucidation of the clinical phase IIa; and the phase I clinical trial of the XO/URAT1 inhibitor has completed the final group of cases.
——The company's product matrix continues to expand. Three products have been or are about to be approved for listing. The production of products based on coxib claims has been accepted; emgliflozin APIs and tablets have been approved for marketing; and liraglutide is expected to be approved for marketing by the end of this year.
——The international layout continues to advance. In September of this year, the company and Jianyou Co., Ltd. reached a cooperation agreement on the sale of three types of insulin (glycine, menthol, and lychee) in the US market. The company will be responsible for the development and production of these three types of insulin, while Jianyou Co., Ltd. will be responsible for the commercialization of the products.
The good progress of the domestic R&D pipeline and the continued advancement of international business are expected to become a new driving force for the company's future performance.
There was a slight increase in the sales expense ratio, and other expense rates were generally well controlled. The company's 2023Q1-3 sales/management/finance expense ratio was 30.30% /- 5.66%/-0.38% respectively, year-on-year -2.41/-0.70/+0.07PCT, and the overall cost rate was well controlled. The company's 2023Q1-3 net operating cash flow was 473 million yuan, -41.49% year-on-year, mainly due to a decrease in cash received by the company from sales products compared to the same period.
Risk factors: risks such as collection and procurement volume falling short of expectations after price reduction; new product promotion falling short of expectations; risk of development progress falling short of expectations; international geopolitical risk.
Profit forecast, valuation and rating: The company is a leading domestic insulin leader and a pioneer in chronic disease management layout. 23Q1-3 performance is in line with expectations, overall insulin products show a good growth trend, and market share continues to rise. The rapid release of third-generation insulin has brought about continuous optimization and improvement of the product structure; and the orderly progress of the company's subsequent R&D pipeline and the continuous advancement of international business have guaranteed long-term development potential. Overall, we maintain the company's 2023-2025 EPS forecast of 0.55/0.66/0.79 yuan. Referring to the valuation level of comparable companies in 2023 (according to Wind's unanimous forecast, Changchun Hi-Tech 13 times PE, Lizhu Group 16 times PE, average value is 14), and considering that the company's many innovative drugs in the fields of weight loss and high uric acid have entered the clinical stage, the fastest progress is already in clinical phase II. With the approval and listing of these drugs in the field of chronic disease-related diseases, it is expected to contribute momentum to medium- to long-term performance growth. In the medium to long term, the company was given 25 times PE in 2023, with a target price of 14 yuan (original target target) The price is 12 yuan), maintaining the “buy” rating.