In 2023, the medicinal glass business developed rapidly, focusing on the pharmaceutical glass sector. Since 2023, along with the continuous implementation of the company's borosilicate control bottle production capacity, the borosilicate medicinal glass business has ushered in rapid growth. According to estimates, the company's borosilicate bottle business revenue growth rate is expected to exceed 35% in 2023. The rapid growth of the medicinal glass business shows, on the one hand, the huge space in the borosilicate market (currently the penetration rate is expected to exceed 10%, and the next 5-10 years is expected to increase to 30%-40%), and on the other hand, it also shows the company's determination to develop in the pharmaceutical glass field. Benefiting from a marked increase in the proportion of procurement of injections from collection, the borosilicate pharmaceutical glass market has ushered in a phase of accelerated development. The company has a first-mover advantage and lays out production capacity ahead of schedule. 2024 will usher in the harvest period for medicinal glass plates.
The borosilicate molded bottle business has huge potential, and a substantial breakthrough is expected in 2024. The company ignited the borosilicate molded bottle kiln in August '22, with an annual production capacity of 5,000 tons. The product quality is reliable. It has passed the certification of the National Drug Evaluation Center. Samples have now been sent to pharmaceutical companies and are currently completing related reviews and approval. It is expected that batch supply to pharmaceutical companies will begin in the future. On the sales side, in line with the corresponding release of production capacity, an independent molded bottle division was set up to prepare for upcoming sales volumes in advance. Currently, the only domestic suppliers of borosilicate molded bottles are Shandong Pharmaceutical Glass and Sichuan Langzhong ****. Compared with borosilicate control bottles, suppliers have stronger bargaining power and are more profitable.
The national collection and introduction of injections has accelerated, and the demand for borosilicate glass materials has increased markedly. With the eighth batch of harvesting in the second half of '23, the ninth batch of harvesting was carried out in various provinces in March '24. We expect the corresponding demand for borosilicate pharmaceutical glass will be further released, which will further bring significant growth to the borosilicate control bottle business. According to statistics obtained through public channels, injections are still the main dosage forms collected in the eighth and ninth batches. Of these, 20 of the 41 reported varieties collected in the ninth batch are injections.
The company adjusted its 2023-2025 EPS to 0.49 yuan, 0.70, and 0.92 yuan respectively (the original forecast is 0.72 and 1.20 yuan for 2024 EPS), taking into account the high price of boric acid and the failure to recover from overseas demand, the revenue and gross profit margin of non-medicinal glass was lowered, while the gross margin forecast for medicinal glass was slightly lowered. We approve giving the company a 30% premium on the average valuation of the industry, comparable to the company's average of 20X PE in 2024, corresponding to a reasonable PE of 25X in 24, corresponding to a target price of 17.50 yuan, maintaining a “buy” rating
Risk warning
The efficiency of the new ignition production capacity fell short of expectations, the rise in raw material costs exceeded expectations, and the recovery in overseas demand fell short of expectations