Key points of investment

Investment logic: 1) Steady expansion of main business, partner plans+stock option incentives+share repurchases+multi-year shareholder dividends to show company confidence. 2) Microspheres and biologics have entered the pipeline harvest period. It is expected that products such as semeglutide, aripiprazole, IL-17A/F, goserelin sustained-release agents, and ellagoline sodium tablets will all be marketed in the next 3-4 years, driving increased performance. 3) At the bottom of the valuation, the innovative attributes have yet to be reflected.

Microspherical preparations and biological products have entered the harvest period, with incremental products contributing a peak sales value of about 6.5 billion yuan: the company's high-end pharmaceutical and biopharmaceutical pipelines accelerated implementation in 2023-2025, and innovative attributes have not yet been reflected in current valuations. Of these, 6 key R&D products have been launched in the past 3-4 years, and we expect to contribute a total of about 6.5 billion yuan to peak sales. In the field of assisted reproduction: ① triptorelin microspheres (listed in 23Q1) and ② goserelin sustained-release implants (phase I clinical, 2027E listing), corresponding to 1.5 billion yuan and 3.8 billion yuan respectively in the same category of markets. They still account for 90% + share with imported products, and are expected to quickly achieve 30% import substitution, contributing 500 million yuan and 1.1 billion yuan in revenue. ③ Psychiatric field: The report of aripipiprazole microspheres has been accepted, and octreotide microspheres have entered BE clinical trials. Using the company's original psychiatric channels, the long-term dosage forms meet urgent clinical needs, and the competition in psychiatry is relatively competitive. We expect aripiprazole sales to peak at about 900 million yuan. ④ Biological products:

Simeglutide diabetes indications are expected to be produced in 24Q2, and weight loss indications are submitted to IND at the end of 23. The dual market space corresponding to diabetes and weight loss exceeds 100 billion yuan. We forecast a peak sales of 2 billion yuan. ⑤ IL-17A/F dual-target monoclonal antibody (phase III clinical, 2027E launch), psoriasis+ankystitis market is about 570+5.6 million people. It is expected to be the first IL-17 dual-target monoclonal antibody in China. We forecast a peak sales value of 1.5 billion. ⑥ IL-6R tocilizumab (23Q1 approved) for approximately 4.2 million patients with moderate to severe rheumatoid arthritis, and we expect sales to peak at 500 million.

The main business is developing steadily, holding the lead in the field of assisted reproduction and digestion: in 2016-2022, Lizhu's revenue CAGR was 8.16%; net profit CAGR was 15.99%, thanks to high barrier microspheres and exclusive large variety of products, such as ① Assisted reproduction: various sex-stimulating hormone products, including leuprorelin, urinary folliculin, and recombinant human gonadotropin, etc., will form a good synergy with newly reported progesterone; along with the increase in screening rates for gynecological diseases, assisted treatment rate and reproductive penetration rate in China Improvement, there is great market potential in this field, we predict In 2023-2025, the growth rate of about 15% was maintained under a large base in this field; ② Digestion sector: Exclusive varieties of eprazole and bismuth potassium series still have a monopoly position, plus the recent introduction of P-CAB preparations, consolidates leading advantages in this field.

Partner Plans+Stock Option Incentives+Stock Repurchases+High Dividends: ① Partner Plan, Deducting Non-return Net Profit CAGR ≥ 15% in 2019-2028. ② Stock options incentives, deducting non-return net profit CAGR ≥ 15% in 2022-2024.

③ As of 23Q4, it spent 402 million yuan to repurchase and cancel 120 million shares. ④ Focus on shareholder returns and have a high dividend rate.

Profit forecast and investment rating: We expect that in 2023-2025, the company's net profit will be 21.6/24.4/2.79 billion yuan, and the PE corresponding to the current market value will be 15/13/11 times. Considering the company's innovative attributes, the launch of new products will bring about faster performance growth, higher barriers to complex formulations and exclusive patented products, steady growth in main business, and the company's current low valuation, giving it a “buy” rating for the first time.

Risk warning: Product price reduction, new drug development, raw material supply and price fluctuations, pharmaceutical policy uncertainty risk.