Description of the event

With 2023Q3, the company achieved operating income of 10.09 billion yuan, a year-on-year increase of 3.61%, achieved net profit of 755 million yuan, an increase of 18% over the previous year, and realized net profit without deduction of 733 million yuan, an increase of 16% over the previous year.

Incident comments

Under the influence of industry factors, the company's pharmaceutical industry sector maintained good growth in the third quarter, and commercial growth slowed down. The pharmaceutical industry sector achieved operating revenue of 2,940 billion yuan (including CSO business) in the third quarter, and achieved net profit of 609 million yuan, up 10.13% year on year. Net profit after deduction of non-return to mother was faster than revenue growth, thanks to the company's improved operation management level and steady recovery in key varieties; in terms of product promotion, the microbiology business completed strategic and business cooperation agreements with many overseas customers, and progress was made in market expansion. In terms of approval progress, phase III clinical studies of simeglutide injection and Toku insulin injection have begun, and the first patients were enrolled in September 2023. In terms of the pharmaceutical business, it is estimated that in the third quarter, revenue of 6.7 billion yuan was achieved, a year-on-year decrease of 1%, and net profit of 100 million yuan, which was the same as the previous year.

The medical and aesthetic business continued to grow rapidly, and the domestic medical and aesthetic business showed impressive growth performance, increasing the profit margin to the Group's statements. Overseas medical aesthetics: In the first three quarters, the wholly-owned subsidiary Sinclair in the UK achieved sales revenue of 973 million yuan, an increase of 23.27% over the previous year, and achieved an EBITDA of about 148 million yuan. Domestic Medicine and Aesthetics: Accenture achieved revenue of 824 million yuan in the first three quarters. It is estimated that the 2023Q1-Q3 revenue was 2.1, 3.06 million yuan, and 308 million yuan respectively. In the third quarter of a single quarter, the sales volume of Hinckley's China business, with Yi Yan Shi as the core product, still increased slightly compared to the second quarter, showing that the company continued to gain popularity in the high-end brand building of Yi Yan Shi. At the same time, the company's contribution rate to the company's overall profit margin increased rapidly. In terms of the progress of medical and aesthetic products, Ellansé-M completed the enrollment of all subjects in the Chinese clinical trial in March 2023 and is being followed up. MaLi Extreme hyaluronic acid injections completed the collection of the main efficacy indicators for all subjects in the Chinese clinical trial in August, the LanLumav polylactic acid registration test was officially launched in August, and preparations are being made for clinical trials. The V20 registration application was accepted by the National Drug Administration's Institutional Review Center in September.

Investment advice: In summary, the company had many operating highlights in the third quarter: in the third quarter, the company maintained relatively steady growth in the pharmaceutical industry and commerce under the influence of the pharmaceutical industry. While the medical and aesthetic business maintained good growth, its contribution to the company's overall profit also increased. Looking ahead, the company's future investment highlights are: 1) Yi Yeon-si has successfully established a high-end brand image in China, and recently reached a botulinum toxin product cooperation with ATGC in Korea, looking forward to the continuous registration and landing of new products to open up new markets and improving profitability at home and abroad; 2) The company's multi-point layout around the GLP-1 target is interesting: Liraglutide injection for diabetes, obesity, or overweight indications have all been approved for listing in China this year. Phase III clinical studies of simeglutide injections and Degu insulin injections have all started in September 2023. Complete the first test People join the group. EPS is expected to be 1.6, 1.9, and 2.2 yuan/share in 2023-2025, respectively, maintaining a “buy” rating.

Risk warning

1. Industry policy and market operation risk; 2. Uncertain risk of new drug research and development; 3. Investment and merger risk: Under the company's innovative new strategy, recent years have continued mergers and acquisitions around innovative drugs, medical aesthetics, and industrial microorganisms, putting forward high requirements for business integration.