Report summary
The company is a leader in neuropsychiatry, cardiovascular, and cerebrovascular fields in China. The company is mainly engaged in R&D, production and sales of pharmaceuticals and medical devices, and the pharmaceutical manufacturing sector accounts for more than 80% of business revenue. The company's pharmaceutical products mainly focus on the layout of the three fields of neuropsychiatry, cardiovascular, cerebrovascular, and digestion, and all core varieties have been collected. Among them, the two major pipelines, neuropsychiatry and cardiovascular, and cerebrovascular, have now gradually absorbed the impact of collection, and the main business performance has steadily rebounded. The decline in new solutions for digestive tract rehabilitation has narrowed, and the risk of collection is expected to be quickly digested. The proportion of medical device revenue in the company's total revenue has remained stable at around 15% all year round. Revenue has been growing steadily in the past five years, and CAGR has reached 11%. In 2023, Q1-3, the company achieved operating income of 2,926 billion yuan, an increase of 4.48% over the previous year, and realized net profit of 473 million yuan, an increase of 0.18% over the previous year.
In-hospital and out-hospital dual drive boosts pharmaceutical performance growth. Almost all of the company's neuropsychiatric and cardiovascular and cerebrovascular pipelines have been collected. After price was exchanged for volume, the market share of key hospitals increased rapidly, and sales volume increased steadily. The hospital's presence in the primary market is expected to increase space. In 2021, the company began to focus on the out-of-hospital market in the cardiovascular and cerebrovascular fields, and accelerated the expansion of the out-of-hospital terminal market through various methods such as pharmaceutical e-commerce, brands, and marketing. The online business in the out-of-hospital market gained strength. In 2022, revenue increased to 167 million yuan, a year-on-year growth rate of 174%, which has become a new revenue and profit growth point for the pharmaceutical business. The company initiated sales strategy reform in the first quarter of 2023 and cooperated with business partners outside the hospital to actively develop the retail market outside the hospital. The off-hospital terminal market is expected to accelerate expansion.
With the advantages of integrating APIs and formulations, production capacity boosts new momentum for growth. The company has built a complete pharmaceutical industry chain from APIs to finished drugs, and continues to expand upstream and downstream, which will enhance the company's cost advantage and market competitiveness. By the end of 2022, the company had a number of “API+Formulation” integrated major varieties, namely simvastatin tablets, roxovastatin calcium tablets, pivastatin dispersible tablets, sertraline hydrochloride tablets, and levoethracetam tablets. With the gradual introduction of production capacity at the Shangyu pharmaceutical production base, Shandong raw material production base, and Inner Mongolia traditional Chinese medicine production base, the company's API integration advantages will continue to be highlighted, performance is expected to improve further, and at the same time, the scale of the CMO business is expected to increase. The total solid formulation production capacity will exceed 10 billion tablets, with an estimated output value of about 1.6 billion yuan. After the construction of the Chinese medicine production base in Inner Mongolia, it will have a production capacity of 60 million boxes of traditional Chinese medicine products, with an estimated full production value of about 450 million yuan.
Combining simulation and innovation to build a product pipeline, new drugs for insomnia open up growth ceilings. Focusing on the two major pipelines of neuropsychiatry and cardiovascular, and cerebrovascular, the company rationally plans the R&D pipeline and product gradient layout, and continues to accelerate the development of innovative drugs while promoting the development of generic drugs. The company declares more than 10 projects every year to form a number of generic drug product groups with cost advantages and enhance the competitiveness of generic drugs. As of the first half of 2023, the company's generic drug projects have been registered and approved, 4 registered applications, and 9 R&D projects have been initiated. In total, more than 50 projects are under research, continuing to enrich the generic drug product pipeline and continue to provide product support for the company's development. In terms of innovative drugs, the listing application for the company's first innovative drug, dasinib, has completed technical review and is expected to be approved for listing by the end of this year. The mechanism of action of the agonist+antagonist of didacinib was innovated, with obvious advantages in adverse effects, efficacy and half-life. Relying on the company's many years of experience in the neuropsychiatric field and a professional sales team, it is expected that the market share will increase rapidly after approval for listing. We believe that the long-term space of the company's Darcini site is expected to exceed 1 billion yuan.
Profit forecasts and investment advice
We forecast the company's revenue for 2023/2024/2025 to be 40.17/44.47/4.47/4.983 billion yuan, up 6.26%/10.72%/12.05% year on year. Net profit of the mother was 677/720/844 million yuan, up 2.17%/6.43%/17.24% year on year. Corresponding to the current PE is 18/17/14X. Considering the company's rich product pipeline reserves, the impact of in-hospital collection is clear, there is plenty of room for improvement in the off-hospital market, the gradual release of production capacity, and the imminent approval of Dassinib, a new drug for insomnia, is expected to drive future growth. We gave the company 22 times PE in 2024, corresponding to a target price of 18.42 yuan for the next 6 months. Coverage for the first time, we gave it a “buy” rating.
Risk warning
Risk of industry policy changes; drug development and marketing falling short of expectations; environmental risk; risk of lack of talent.