Key points of investment
Performance: 2023Q3 performance exceeded expectations
2023Q1-Q3: The company achieved operating income of 923 million yuan, an increase of 19.97% year on year; net profit of 233 million yuan, an increase of 24.76% year on year; net profit after deduction of 195 million yuan, an increase of 6.68% over the previous year.
2023Q3: The company achieved operating income of 370 million yuan, an increase of 42.25% over the previous year; net profit of 137 million yuan, an increase of 96.18% over the previous year; net profit after deduction of 101 million yuan, an increase of 44.52% over the previous year.
Growth analysis: The API business is rising steadily, and formulation elasticity is gradually rising. Focus on drogesterone tablet volume. According to the three-quarter report, the company's Q3 revenue YOY reached 42.25%, mainly due to an increase in pharmaceutical, cardiovascular, and women's health sales business.
The number of high-barrier raw materials and drug varieties continues to be released, focusing on high-potential varieties. We believe that with the acceleration of commercialization of the company's high-barrier APIs and intermediates (didrogesterone, abiraterone acetate, etc.), the development of new markets for advantageous varieties, and the release of new production capacity in Yangzhou and Tiantai, revenue is expected to maintain steady growth in 2023-2025, focusing on the development and commercialization progress of the company's potential major products (buvacetan, enzalutamide, semeglutide, etc.).
With the dosage of didrogesterone tablets, the elasticity of the formulation gradually increases. In June 2023, the company's blockbuster product, didrogesterone tablets (unilateral), was approved. Didrogesterone is the company's first integrated API formulation. The competitive pattern is good, and the first domestic pilot is listed, which is expected to drive rapid growth in the formulation business. Furthermore, according to the company's official website, didrogesterone tablets (compound), enzalutamide tablets, and simetaglutide injections are in the pilot phase. It is expected that pharmaceutical products will continue to be approved and the growth chain will continue to grow.
Profitability: gross profit margin and net profit margin increased significantly year-on-year
The 2023Q3 gross margin was 64.37%, up 17.92pct year on year. We expect the Q3 gross margin increase to be mainly affected by product structure. The company's 2023Q3 net interest rate increased 10.01 pct year on year. Judging from the expense ratio, the 2023Q3 sales expense ratio was 11.19%, up 7.71 pct year on year. We speculate that it was mainly due to a large increase in formulation promotion fees; the financial expense ratio was 0.23%, up 7.01 pct year over year; the R&D cost rate was 10.78%, up 0.9 pct year on year; management expenses were 10.67%, down 1.47pct year on year; in addition, the company's Q1-Q3 investment income was 0.3 billion yuan; taking into account the increase in the share of the company's high-margin varieties, The company's R&D investment, equity incentive amortization, and the pharmaceutical business may start to contribute revenue from 2023-2024, and the sales expense ratio may increase. We expect the company's net interest rate to rise steadily from 2023-2025.
Business quality analysis: abundant cash flow, good repayment status
In terms of cash flow, net cash flow from operating activities in Q3 in 2023 increased 765.66% year on year, net cash flow from 2023Q1-Q3 operating activities increased by 226.09% year on year, and “net cash flow from operating activities/net income from operating activities” increased significantly year on year (2023 three-quarter report: 127.70%; 2022 three-quarter report: 42.62%), mainly due to increased sales business and good sales repayment conditions. We are optimistic that the company's operating quality will continue to improve.
Profit forecasting and valuation
We expect the 2023-2025 EPS to be 0.69, 0.88, and 1.12 yuan/share, respectively, and the closing price on November 3, 2023 corresponds to 36 times PE in 2023. We believe that the commercialization of the company's characteristic high-barrier APIs and pharmaceutical varieties in 2023-2025 is expected to support steady profit growth, and the company's technology & product layout in the field of small nucleic acids and peptides is expected to open up medium- to long-term growth space and maintain the “increase in holdings” rating.
Risk warning
Production safety accidents and quality risk; exchange rate fluctuation risk; order delivery volatility risk; pharmaceutical regulatory policy change risk.