East China Pharmaceutical: From medicine to medical beauty, entering a new stage of growth
Huadong Pharmaceutical Co., Ltd. was founded in 1993. After 30 years of development, the company's business covers the entire pharmaceutical industry chain, with the pharmaceutical industry as the lead, while expanding the pharmaceutical business, medical aesthetic industry, and industrial microbiology business. Since 2020, the growth rate of the company's revenue and net profit has declined due to external circumstances such as collection and the epidemic. In 2022, the company achieved total revenue of 37.7 billion yuan (yoy +9%) and net profit of 2.5 billion yuan (yoy +9%). Among them, through a forward-looking layout, the company first entered the medical and aesthetic market and achieved rapid growth in the medical and aesthetic business. In 2022, the company's medical and aesthetic sector achieved a total revenue of 1,915 billion yuan, an increase of 91% over the same period last year on a comparable scale. The pharmaceutical sector is expected to return to a relatively rapid growth trend by strengthening R&D innovation. In 2022, China, the US and East China achieved sales revenue (including CSO business) of 11.244 billion yuan, an increase of 10.88% over the previous year.
Girl acupuncture leads regenerative products and is deeply involved in the high-end injection market
In 2021, the company Yiyanshi Girl's Acupuncture successfully obtained three types of medical device certification. Currently, the only three types of regenerative products approved for the three types of medical devices in China are Aevilan from St. Boma, the child face needle from Aimeike, and the girl needle from Huadong Pharmaceutical. After the launch of the drug for girls, it was rapidly released with product advantages and first-mover advantages. By the end of 2022, the number of hospitals that have signed contracts with Xinkeli Aesthetics has exceeded 500, and the number of certified doctors trained has exceeded 1,100. In 2022, Shinkeli Aesthetics, a wholly-owned subsidiary in China, achieved revenue of 626 million yuan and good profit. In addition, the company is deeply involved in the high-end medical and aesthetic market, and a variety of facial and body fillers are being researched. Among them, MaiLi hyaluronic acid is positioned as high-end. According to the 2023 three-quarter report, MaiLi Extreme Hyaluronic Acid completed the collection of the main efficacy indicators of all subjects in clinical trials in China in August 2023, and it is expected that MaiLi hyaluronic acid will be approved for marketing in China.
Strategically lay out the field of optoelectronic equipment and gradually enter a harvest period
The company acquired 100% of Spain's High Tech shares in 2021 and obtained a series of products such as cryolipolysis devices such as Cooltech and laser hair removal equipment such as Primelase; in February 2022, Sinclair completed the acquisition of shares in Viora, an American company focusing on non-invasive medical, aesthetic, and minimally invasive energy source equipment, further expanding the company's innovative medical and aesthetic product pipeline. A variety of products are expected to be marketed domestically, and optoelectronic equipment will enter a harvest period. 2022Q1 Heavy Snow Glacial Spa? The world premiere was successfully completed in China. According to the 2022 annual report, commercial cooperation has been carried out with more than 40 domestic beauty agencies. Cooperation models will be further broadened in 2023, cooperation models will be further expanded, and cooperation and market coverage with domestic beauty institutions will be accelerated. Furthermore, the photoelectric radio frequency product Reaction Reaction, which focuses on the dual effects of “anti-ageing+firming” in fine areas, is already on the domestic market, and we are looking forward to product release.
A full-cycle, differentiated and innovative product pipeline. We expect major new listed companies to continue to strengthen R&D and innovation in pharmaceutical business, establish a global new drug research and development center, and build a relatively complete independent drug research and development innovation system covering everything from drug discovery, pharmaceutical research, pre-clinical research, clinical research to industrialization. According to the 2023 interim report, the company has prepared 51 new drug and biosimilar drug projects, covering the fields of endocrinology, autoimmunity and oncology, effectively guaranteeing the continuous positive development trend of clinical promotion and marketing of innovative products, and providing new impetus for medium- to long-term development.
Industrial microorganisms are expected to become a new driving force for growth
The company continues to expand the field of industrial microbiology. In 2022, the company quickly seized the market by integrating traditional API business and expanding new businesses such as innovative pharmaceutical raw materials and raw materials for big health products. The overall business continued to maintain a steady growth trend, achieving a total sales revenue of 510 million yuan for the whole year, an increase of 22% over the previous year. The company has established five major directions: raw materials for innovative drugs (xRNA & ADC drugs), pharmaceutical raw materials & intermediates, major health & medical raw materials, pet animal protection, and specialty biomaterials. It is expected that it will continue to enrich the product pipeline with high innovation, high technical barriers, and high added value in the five major business areas through R&D, and continue to optimize the product structure, which is expected to become another engine for the company's growth.
Investment advice
We believe that there is still plenty of room for improvement in the long-term penetration rate of the domestic medical and aesthetic market, and light medical aesthetics, which mainly projects such as injectable fillers and optoelectronics, have become mainstream medical and aesthetic projects. The company has a comprehensive layout of injection-filling+optoelectronic equipment products. Since its launch, EYANSHI has continued to lead the way in rapid release. Since then, various hyaluronic acid and optoelectronic products under development have been relayed to the market, and the growth momentum of the medical and aesthetic business is strong. The pharmaceutical industry is gradually emerging from the influence of collection, and the gradual commercialization of innovative drugs has brought new growth points to the pharmaceutical industry sector.
The layout of the industrial microbiology business is expected to contribute to additional volume. We expect the company's operating income for 2023-2025 to be 420/463/51.1 billion yuan, with year-on-year growth rates of 11.4%, 10.3% and 10.2% respectively, net profit of 30/36/43 billion yuan, year-on-year growth rates of 18.2%, 21.1% and 20.6% respectively, corresponding earnings per share of 1.68/2.04/2.46 yuan/share, corresponding PE of 25/20/17 times. First coverage, giving a “buy” rating.
Risk warning
Risk of price reduction of stock products; risk of changes in regulatory policies; risk of new drug development; risk of exchange rate fluctuations, etc.