Matters:
On November 14, 2023, Dongcheng Nuclear Medical, a wholly-owned subsidiary of the company, and Eckert & ZieglerRadiopharma Projekte UG (“EZP” for short) signed a “Joint Venture Agreement”. The two sides reached an agreement on Dongcheng Nuclear Healthcare's capital increase in Qikangyuan Medical Technology (Changzhou) Co., Ltd. and joint cooperation in the development of medical isotopes.
Ping An's point of view:
The import of medical isotopes is highly dependent, and the partner is one of the main suppliers. According to the “2023 Nuclear Drug Industry White Paper”, the current concentration of medical isotope reactors is very high. A few reactors such as Belgium, the Netherlands, Canada, and the United States account for more than 90% of the global supply. The Eckert & Ziegler Group is one of the world's largest providers of medical, scientific, and industrial isotopes. As a company listed on the Frankfurt Stock Exchange in Germany, it achieved revenue of 184 million euros (+11%) in the first nine months of 2023, of which the medical sector revenue was 83 million euros (+27%). The increase was mainly due to sales of medical radioisotopes. EZP is a subsidiary of Eckert & Ziegler. It is mainly a shareholding platform with no actual business operations.
Qi Kangyuan's capital increase helped Dongcheng improve its ability to control upstream nuclide supply. Before the capital increase, EZP held 100% of Qi Kangyuan's shares; after the capital increase, Dongcheng Nuclear Healthcare and EZP each held 50% of Qi Kangyuan's shares, and each invested 20 million euros. In this cooperation, the two sides will utilize their respective technology and resource advantages to reach comprehensive cooperation on R&D, production and sales of various medical isotopes such as 225Ac, 177Lu, 68Ge, and 68Ga generators. According to our statistics, the above nuclides are currently popular nuclides in the development of innovative nuclear drugs at home and abroad.
The supply of nuclides is an important part of the nuclear drug ecosystem layout, and we are optimistic that the company's leading position will continue to be consolidated. We maintain the company's 23-25 net profit forecast of 376 million yuan, 470 million yuan, and 608 million yuan respectively. The current stock price is 33 times that of PE in 2024. We are optimistic about the company's nuclear drug ecosystem layout. At the same time, we have continuously ushered in breakthroughs in fields such as innovative nuclear drugs and AD diagnosis, maintaining a “highly recommended” rating.
Risk warning. 1) R&D progress falls short of expectations: There is a risk that the company's innovative drug development will fail or progress less than expected. 2) Risk that sales fall short of expectations: Nuclear drug stocks are affected by factors such as policies and competitive patterns, and there is a possibility that quantities will fall short of expectations. 3) There is a risk that the price reduction of APIs will exceed expectations: There is a possibility that the price of heparin APIs will continue to fall.