Event: The company released its 2023 three-quarter report. The first three quarters achieved operating income of 1.05 billion yuan, an increase of 10% over the previous year; net profit of the mother was 182 million yuan, a decrease of 10.1% over the previous year. Q3 revenue was 419 million yuan, up 3.9% year on year; net profit was 94.58 million yuan, up 15.1% year on year. Both revenue and profit increased quarterly.

23Q3 business exceeded expectations, and cyclosporine release continued to accelerate. The company had revenue of $1.05 billion for the first three quarters of 23 years (+10% YoY) and net profit of $182 million (-10.1% YoY); of these, Q3 revenue was 419 million (+5% YoY) and net profit was 94.58 million (+38.3% YoY), with revenue and profit exceeding expectations. According to the 2023H1 business situation, we expect Q3 to continue to accelerate the release of ciclosporin eye drops, the core product of Q3. Cyclosporine eye drops, the first generic drug for dry eye disease, continued to be rapidly released after being added to the medical insurance negotiation list in 2021. Sales revenue is estimated at 200 million yuan in '22. Relying on the huge dry eye market and first-use status, it is expected to be further rapidly released in '23. In July 2022, a new policy on Internet hospitals was introduced, prohibiting the sale of in-hospital preparations through Internet hospital channels. This policy has affected the medical service business from 22Q3 to now. The cost rate situation during the 2023Q1-3 period: 1) The sales expense ratio was 37.2%, an increase of 3 pct over the previous year; 2) the management expense ratio was 10.2%, a decrease of 1.9 pct, with a steady decline; 3) the R&D cost rate reached 11%, an increase of 2 pct, or due to increased investment in clinical research and development of low-concentration atropine.

The first round of reviews of low-concentration atropine has been completed, and additional information has been submitted. On September 19, according to information from the official website of the Drug Evaluation Center (CDE) of the State Drug Administration (CDE), the first round of technical review of atropine was completed, and supplementary information was officially submitted on the 27th. According to normal procedures, 2024Q1 is expected to be officially approved. According to our forecast, low-concentration atropine myopia prevention and control is mainly used for children and young people aged 5-16. The total number of myopic people in this age group is close to 100 million; currently, the annual cost of mainstream atropine in-hospital formulations is about 3,600 yuan. Under neutral conditions, we expect Singqi products to peak sales in the 3rd full year of marketing (that is, 2027), reaching 10.18 billion yuan, which will reshape the ophthalmic drug market pattern. According to normal 24Q1 approval expectations, the company is expected to enter a stage of explosive growth in revenue and performance in 2024.

Investment advice: Without considering that atropine was approved in 2024Q1, the company is expected to achieve revenue of 15.1/20.0/2.63 billion yuan in 2023-2025, achieve net profit of 30/4.3/570 million yuan, and maintain a “buy” rating.

Risk warning: Atropine approval progress is lower than expected; competition for cyclosporine eye drops intensifies or there is a risk of price reduction in collection; promotion and sales of traditional eye medicine products fall short of expectations and the risk of entry into collection.