Strong policy support and widespread application of new technology and new scenarios are expected to open up the blue ocean market for early cancer screening.
As a leading enterprise in early cancer screening in China, the company is expected to sail by storm in the sea of stars. We expect the company's revenue from 2023 to 2025 to be 1,791 million/2,887 million/4.272 billion yuan; net profit of 23 million million/413 million/1,016 million yuan respectively; corresponding EPS (basic) forecasts are 0.05/0.90/2.22 yuan, respectively. Using the absolute valuation DCF method as 2023, the reasonable equity value of the company was calculated at HK$21,083 billion, corresponding to a share price of HK$46.06 per share. Using the relative valuation PS method, we gave the company 10 times PS in 2023, corresponding to a reasonable price of HK$42.52. In summary, we gave the company a target price of HK$44 for 2023, covering the first time, and giving it a “buy” rating.
The first sign of early cancer screening has a first-come advantage. The company was founded in 2015 and is a pioneer in the colorectal cancer screening market in China, a leader in early cancer screening in China, and a pioneer in home testing. For colorectal cancer and gastric cancer, which are currently the most common types of digestive tract cancer in China, the company has separately marketed and commercialized three products: Chang Weiqing, Pu-pu-Tube, and You-Guang, and has continued to promote the registration and listing of other cancer screening products. 2021 was Chang Weiqing's first year of commercialization, achieving revenue of 97.22 million yuan, accelerated performance in 2022, and achieved revenue of 356.57 million yuan, corresponding to sales volume of 89,800, 144,500, and 361,400 copies in 2020-2022, respectively. Puff Tube and Chang Weiqing have a synergistic effect. Puff Tube's revenue CAGR from 2018 to 2022 reached 60%. In its first year of listing, Youyou had revenue of 207.77 million yuan, corresponding sales volume of 3,559 million copies. The performance of the company showed an accelerated trend, validating the commercialization potential of early cancer screening products.
Industry: New technology and new scenarios, the blue ocean market is opening. The burden of cancer in our country is huge. Early screening, early diagnosis, and treatment can effectively improve survival rates. Early screening products require three elements: accuracy, compliance, and compliance. Liquid biopsy refers to the method of extracting samples of non-solid tissue from the human body for testing, including the collection and testing of all body fluids such as blood, urine, and saliva, as well as feces. Comprehensive multi-dimensional component analysis combined with machine learning algorithms is the development trend of cancer liquid biopsy technology. The Healthy China Campaign (2019-2030) sets a target for the 5-year survival rate of the country's overall cancer to exceed 43.4% and 46.6% by 2022 and 2030, respectively. The early diagnosis rate of major cancer types in regions with high incidence rates will reach 55% and above and continue to rise. Strong policy support and widespread application of new technology and new scenarios are expected to open up the blue ocean market for early cancer screening. According to our estimates, the market space for long-term early cancer screening products based on liquid biopsies is over 100 billion yuan.
Company: Focusing on the development of early screening products, focusing on high-incidence cancer types. As the company's favorite product, Chang Weiqing has excellent product performance and is recommended by many clinical consensus. The potential target group for early screening for colorectal cancer is huge, and the company's products are currently in a period of expanding channels. We believe that Chang Weiqing's growth path lies in the following three paths: ① In-hospital channels: medical examination departments as entry points, proctology “endorsements”; ② DTC channels: vast out-of-hospital markets with upgraded consumption; ③ overseas commercialization: starting from Hong Kong, China, and reaching Southeast Asia. The Poop Tube is the company's non-invasive fecal FIT (Fecal Immunochemical Test, Fecal Immunochemical Test) colorectal cancer screening product. It uses a home self-test method, which is more convenient. The price of puff tubes is low, and they can provide Chang Weiqing with a drainage conversion effect. Tuberculosis is suitable not only for Helicobacter pylori antigen testing by medical professionals in medical units, but also for consumer self-testing, making it the first Helicobacter pylori testing product suitable for “consumer self-testing” among similar products. The company's current R&D pipeline covers a variety of high-incidence cancer types and extends to pan-cancer screening. Gong Jingqing began clinical prospective registration in November 2022, and the company expects Gong Jingqing to begin clinical prospective registration at the end of 2023.
Company advantage: Company advantage: talent-based, integrated product, marketing and R&D. As a leading domestic early cancer screening company, the company has product performance that is not weaker than Cologuard's product performance against Exact Science, a leading international company. Furthermore, the company is people-oriented and builds competitive barriers through the trinity of product, marketing, and R&D.
The company's executives all have rich relevant experience and focus on talent training and introduction. The product side focuses on early cancer screening products. The positioning of different product groups complements each other, is guided by unmet clinical needs, and actively develops and expands the product pipeline. The marketing side actively forms all-round cooperation with medical examination agencies, Internet platforms, insurance institutions, and pharmaceutical companies. By actively expanding the sales team, it has formed the only promotion team in China focusing on early cancer screening products. The R&D side has carried out a comprehensive patent layout. In the sample collection process, DNA extraction process, and marker testing process, it has formed patented technology developed independently, and continues to promote the company's R&D innovation.
Risk factors: risk of sales falling short of expectations; risk of R&D progress falling short of expectations and failure; risk of increased competition; risk of policy changes and compliance; risk of impairment of accounts receivable.
Profit forecast, valuation and rating: As a leading enterprise in early cancer screening in China, the company rapidly launched three commercial products. We expect the company's revenue forecast for 2023-2025 to be 17.91/28.87/4.272 billion yuan; the net profit forecast is 0.23/4.13/10.16 yuan, respectively, and the corresponding EPS (basic) forecast is 0.05/0.90/2.22 yuan, respectively. Using the absolute valuation DCF method as 2023, the reasonable equity value of the company was calculated at HK$21,083 billion, corresponding to a share price of HK$46.06 per share. Using the relative valuation PS method, we gave the company 10 times PS in 2023, corresponding to a reasonable price of HK$42.52. In summary, we gave the company a target price of HK$44 for 2023, covering the first time, and giving it a “buy” rating.