Incidents: The company released its 2023 three-quarter report. The first three quarters achieved operating income of 929 million yuan, a year-on-year decrease of 24.55%; net profit of 54.54 million yuan, a year-on-year decrease of 74.51%; net profit of 53.06 million yuan was deducted, a year-on-year decrease of 74.94%.
Short-term performance was affected by COVID-19 disruptions and rising production capacity, and Q3 began to pick up. The company's revenue fluctuations in the first three quarters were mainly due to a decrease in COVID-related orders and the divestment of Liaoyuan Pharmaceutical. Profit side fluctuations were mainly due to: 1) revenue reduction; 2) profit and loss from changes in investment income and fair value due to exchange rate changes; 3) new production capacity was just beginning to be released, and product pipeline transfers and rising production capacity affected profit margins. The company's business recovery trend in the third quarter is obvious. Looking at a single quarter, 2023Q3 achieved operating income of 346 million yuan (+3.87%, same below). Excluding the influence of Liaoyuan Pharmaceutical, 2023Q3 revenue increased 25.51% year on year, net profit of 23.68 million yuan (-19.28%), and deducted non-net profit of 27.31 million yuan (-32.89% y/y, +97.21%). Looking ahead to the whole year, as formulations continue to be released, CDMO cooperation deepens, and new production capacity gradually climbs, the company's performance is expected to return to a rapid growth trend, driven by the pharmaceutical and CDMO business.
Expense ratio: gross margin decreased, cost ratio increased, and R&D expenses accounted for a stable share. Gross profit margin: The gross profit margin for the first three quarters was 32.48% (-8.37pp), and the 23Q3 gross profit margin was 36.07% (-1.00pp). Expense ratio: The sales expense ratio for the first three quarters was 3.59% (+1.50pp), the management expense rate was 13.62% (+2.17pp), the financial expense ratio was 1.72% (+1.32pp), and the total cost rate for the three categories was 18.93% (+4.99pp). 23Q3 sales expense ratio is 3.78% (+0.43pp), management expense rate is 13.48% (-1.15pp), financial expense ratio is 0.72% (+0.93pp), and the total cost rate for the three categories is 17.97% (+0.21pp). R&D investment: R&D expenses for the first three quarters were RMB 64.35 million (-9.41%), accounting for 6.93% of revenue (+1.16pp); 23Q3 R&D expenses were RMB 28.72 million (+6.68%), accounting for 8.29% of revenue (+0.22pp).
The share of R&D investment remains stable.
Profit forecast and investment advice: According to the three-quarter report, considering fluctuations in the international environment and the pace of the company's business and production capacity release, we adjusted the profit forecast. We expect the company's 2023-2025 revenue of 14.95, 17.45, and 2.100 billion yuan (16.50, 19.25, 2,317 billion yuan before adjustment), up 2.6%, 16.8%, 20.3% year on year; net profit of 1.20, 2.29, 3.03 (before adjustment), up -64.7%, 91.8% year on year. 32.3% Currently, the company's stock price corresponds to 35/18/14 times PE in 23-25. Considering that the company is in the stage of expansion and upgrading of APIs and accelerated transformation of formulations and CDMO, the company maintains a “buy” rating.
Risk warning events: environmental risk, quality risk, risk of price fluctuations of APIs and intermediates, risk of product development falling short of expectations, risk of delays or untimely updates of disclosed information.