Shareholder optimization+management improvement, the company is expected to enter the first tier, cover for the first time, and give a “buy” rating

Pailin Biotech is a high-tech enterprise integrating R&D, production and sales of blood products. The company owns products including albumin, immunoglobulins, and coagulation factors. The change of the company's actual controller to the Shaanxi Provincial State-owned Assets Administration Commission is expected to bring in additional resources for the pulping station; it is also expected that through the company's internal management, various cost rates will be reduced and the level of net interest rates will be raised. The company continues to launch new products with high added value, which is expected to lead to an increase in gross margin and a continuous increase in the profit level of a single ton of pulp. Looking ahead to 2023, the company's pulp extraction volume is expected to exceed 1,100 tons, and is expected to reach an inflection point in performance in the second half of the year. We expect net profit from 2023-2025 to be 60/7.7/94 million yuan, corresponding EPS to be 0.82/1.05/1.28 yuan, and current stock prices corresponding to PE of 32.52/25.40/20.88 times, respectively. Considering that the company's future plasma station resources and pulp production volume have a lot of room for improvement, new products are expected to be gradually launched, and the company is expected to rank first in the domestic blood products industry, covering it for the first time, giving it a “buy” rating.

Industry: Collection does not affect ex-factory prices, leading enterprises benefit, and state-owned capital investment accelerates the increase in industry concentration

The blood products industry is driven by factors such as high entry barriers, scarce resources at plasma stations, and oversupply, etc., driving up terminal product prices, and the industry is booming. The current positive changes in the industry include the following three points. First, the increase in new pulp stations set up in the “14th Five-Year Plan” plan drives an increase in pulp production, and the supply structure of the blood products industry is expected to improve further; second, the collection policy does not affect factory prices, leading blood products companies benefit as a whole; third, the speed of industry integration is speeding up, and enterprises with state-owned capital backgrounds are expected to have an advantage in integration. In the future, leading enterprises in the industry will have a lot of room for improvement in terms of adding new pulp stations, product types, and increasing the profit of tons of pulp.

Shaanxi State-owned Holdings is expected to promote the company's further rapid development through empowerment and internal corporate governance

Due to historical reasons, Pailin Biotech has a certain gap with the industry average in terms of various expense ratios, gross profit margin, net interest rate, etc. For example, 2023Q1-3, the company's sales expense ratio is 14.7%, while the industry average is 11.9%. With the participation of the Shaanxi Coal Group, which is 100% controlled by the Shaanxi Provincial State-owned Assets Administration Commission, it is expected that the company's management efficiency will be improved through empowerment and internal corporate governance. Various indicators are expected to improve. Furthermore, at present, there are only 4 pulping stations in Shaanxi Province. The pulping stations to be excavated are rich in resources, and the Shaanxi Coal Group has strategic partnerships such as coal insurance and supply in regions along the Yangtze River such as Hunan, Hubei, Jiangxi, Sichuan, and Chongqing. The Shaanxi Coal Group is expected to bring many pulp station resources to the company. It is expected that after the actual controller is changed to the Shaanxi Provincial State-owned Assets Administration Commission, the company is expected to usher in a new period of rapid development.

Risk warning:

Pulp extraction volume falls short of anticipated risk; product sales fall short of expected risk; new product launch falls short of anticipated risk.