Matters:
On January 4, 2024, Qianhong Pharmaceutical announced that it will repurchase shares. The repurchase price will not exceed 6.8 yuan/share, and the total repurchase amount will be about 805-170 million yuan, accounting for about 0.98-1.95% of the company's total share capital.
Ping An's point of view:
The share repurchase is expected to benefit the company's stock price and demonstrate confidence in long-term development. The maximum price for the repurchase of shares this time is 6.8 yuan/share, which is no more than 150% of the average trading price of the company's shares in the 30 trading days before the board of directors passed the share repurchase resolution. Share buybacks are intended to be used in employee stock ownership plans or equity incentive plans. It is conducive to establishing a benefit-sharing and restraint mechanism, fully mobilizing the enthusiasm and creativity of the incentive target, integrating their interests more closely with the long-term development of the company, and achieving sustainable enterprise development.
A new upward cycle of heparin is expected to begin, and the company is actively expanding the upstream to build an advantage in the entire industry chain.
Since 2022, the impact of the global epidemic has gradually weakened, overseas demand has gradually weakened, and heparin prices have fallen rapidly. According to data from the General Administration of Customs, the average monthly export price of heparin was 11,779 US dollars/kg in July 2023, but the monthly supply was only 5 tons at an all-time low. Affected by the supply and demand relationship, as of October 2023, the price of heparin had quickly fallen to a low level of $4805/kg, which is basically the same as the price level in early 2018. Margins are initially showing, and the monthly supply of heparin has also gradually rebounded to 9.37 tons. The downstream supply and demand relationship continues to improve, and a new heparin price upward cycle is expected to begin. At the same time, the company set up a joint venture with Muyuan Co., Ltd., the largest pig breeding enterprise in China, to further integrate upstream industry resources and help build advantages in the entire heparin industry chain. On the formulation side, the company won the bid for the eighth batch of national procurement, and barefoot varieties are expected to increase performance. Furthermore, the company reached a strategic cooperation with the Bayer Group on Daxi compound digestive enzyme capsules, introduced related products into the Bayer OTC sales platform, and actively developed the out-of-hospital market, which is expected to achieve strong growth in the pharmacy channel.
Lay out innovative drugs and open up the company's second growth curve. According to the company's announcement, QHRD107, a CDK9 inhibitor for hematoma treatment, is a new targeted anti-cancer drug independently developed by the company. Phase II clinical trials to treat acute myeloid leukemia (AML) are being carried out domestically. Currently, no highly selective CDK9 inhibitors have been approved for marketing worldwide. The company's product is leading the world in progress and is administered orally, and patients are more compliant. In addition, the company also has innovative drugs for various indications such as glioma, acute ischemic stroke, and slow growth in children lacking growth hormone, which is progressing steadily in the research pipeline, which is expected to open up the company's second growth curve.
Investment suggestions: The company's pharmaceutical ingredient side is expected to start a new upward cycle of heparin, Henan Qianmu, to help cover the entire industry chain, accelerate the release of the drug Duandaxi compound digestive enzyme in the off-hospital market, and increase the share of the barefoot variety Enoxaparin. We expect the company to achieve revenue of 21.98/24.18/28.33 billion yuan in 2023/2024/2025, respectively, and net profit of 227/3.26/422 million yuan, respectively. In line with the progress of the company's innovation pipeline, the company's valuation is expected to continue to rise and maintain the “recommended” rating. .
Risk warning: 1) Heparin price fluctuation risk: The heparin industry to which the company belongs has cyclical characteristics. The price of crude heparin products, the price of APIs, and demand will show cyclical fluctuations, which may have an impact on the company's performance. 2) Risk that drug development progress falls short of expectations: Innovative drug development risks are high, and there is a risk of R&D failure.
3) Impact of national policies: Health insurance negotiation policies may be adjusted, thereby affecting prescriptions for heparin-like drug formulations, thereby affecting the company's pharmaceutical sales.