3Q23 results we expect
The company announced 3Q23 results: revenue for the 1-3 quarter was 23.9 billion yuan, +1.6% year-on-year; net profit was 4.49/4.72 billion yuan respectively, +0.6%/+2.0% year-on-year. Looking at the third quarter alone, revenue was 7.78 billion yuan, and net net profit was 15.3/1.55 billion yuan per cent, respectively, net profit of 1,53/1.55 billion yuan, +1.7%/-0.1% year-on-year. The third quarter results were in line with our expectations.
Development trends
The third quarter showed business resilience. Although the rectification of the medical industry has accelerated since July, the company's entire line of business is in line with expectations. Looking at 3Q23 alone, pharmaceutical revenue was +1.3% year-on-year. Among them, the nervous system is +11% (the steady growth of Enbipu), anti-tumor -12% (influence of collections such as Kaili), anti-infection +12%, cardiovascular -16% (mainly due to the fact that Xuanning Collection did not win the bid. The company expects the product's retail market to gain strength next year and still maintain a sales volume of more than 1 billion yuan), respiratory system +98%, digestive system +22%, and other fields +27%. API revenue was -12% year over year, of which antibiotics +15%. Vitamin C was affected by continued weak prices, -18% year over year, and functional foods and others were affected by falling prices, -6% year over year. The company also said that academic conferences and normal sales activities began to resume since September.
Management gave guidelines for positive revenue and profit growth in 2023 and double-digit growth in 2024. Among them, recently approved varieties are expected to contribute a total of 3 billion yuan in revenue in 2024. The company said that the dividend ratio for the whole of 2023 will not fall below the 1H23 level (40.6%), and that it can continue to maintain a dividend rate of more than 30% in the future. Furthermore, the company recently announced that repurchases will be used to incentivize executive shares, and the corresponding 2023-24 performance assessment targets are consistent with the above guidelines.
The innovation pipeline is sorted out and integrated, and we look forward to the continuous implementation of milestones. In August, Xinowei, a subsidiary of Shiyao Pharmaceutical Group, subscribed to 51% of Jushi Biotech, the group's main innovative drug platform. The latter focused on research and development in the fields of antibody drugs, antibody-conjugated drugs (ADC), and mRNA vaccines. As of 3Q23, there were more than 20 projects under research, including the approved mRNA COVID-19 vaccine. Novo has announced plans to change its name to Shiyao Innovative Pharmaceutical Co., Ltd., and to repurchase shares several times within 3 quarters for core employee incentives. The company expects PD-1 monoclonal antibodies, omazumab, etc. to be approved in 2024, and clinical data will also be read for various ADCs, small molecule drugs (SYHA1813, etc.), EGFR antibodies, docetaxel albumin, etc.; the company expects HER2 ADC, usinumab, etc. to be marketed within 2025, and Fc-glp1 and semeglutide injections will be marketed around 2026, respectively.
Profit forecasting and valuation
Considering the impact of the rectification of the medical industry, we slightly lowered our 2023/24 core net profit forecast by 2% to 62.3/6.93 billion yuan respectively. The current stock price corresponds to a price-earnings ratio of 12/11 times 2023/24. Based on our optimism about the company's innovation pipeline, we maintain an outperforming industry rating and target price of HK$9.3, corresponding to a price-earnings ratio of 15/13 times 2023/24, with room for growth of 32% from the current price.
risks
The impact of industry restructuring has exceeded expectations, the impact of policies on prices has exceeded expectations, R&D has failed, internationalization has fallen short of expectations, and the competitive landscape has deteriorated.