Key points of investment

The drop in heparin export prices caused inventory impairment to drag down profits in 2023. We continue to be optimistic that the internationalization of the company's formulations will continue to break through from variety to volume.

Financial performance: The export price of 2023Q4 heparin fell sharply. On January 13, 2024, the company issued the “2023 Performance Advance Loss Notice” and the “Proposed Inventory Price Reduction Preparation Notice for 2023". The company's net profit attributable to shareholders of listed companies in 2023 is expected to be 200 to 100 million yuan, and non-net profit attributable to shareholders of listed companies is deducted from 23 to 130 million yuan. According to the company announcement:

“Since the fourth quarter of 2023, the price of heparin products began to drop rapidly. According to customs statistics, the average heparin export price fell sharply by about 45.1% and 33.3% year on year in October and November, showing a sharp decline in volume and price.” “Based on the principle of prudence, the company's proposed inventory price reduction reserve amount for 2023 is about 1 to 1.2 billion yuan”, leading to losses on the profit side.

Outlook: Optimistic about continued breakthroughs in the path of internationalization

The company's 2023 three-quarter report mentioned, “Formulation business revenue accounts for 74.16% of total revenue, API business revenue accounts for 21.82% of total revenue, and other business revenue accounts for 4.02% of total revenue. The sales volume of the company's formulation business continued to rise, accounting for a further increase in revenue.” The internationalization of the company's formulations also made a lot of progress in the three-quarter report, including “the company purchased more than 10 ANDA approvals at once during the reporting period”, “The company made full use of its many years of operating experience in the US market, thoroughly exploited the domestic high-quality product pipeline, and cooperated with outstanding domestic companies on various products, including Mendon, Glycerin, and the three types of insulin, albumin paclitaxel, etc.”

Since entering 2023Q4, injectable cetipa (December 27, 2023) and oxaliplatin injection (January 15, 2024) have been approved by the FDA one after another, and obtained 9 ANDA approvals from the FDA in 2023 (based on Wind's announcement statistics). The company's international injectable products have continued to be rich, and we are optimistic about the performance elasticity brought about by the company's continued approval of export formulations.

Profit forecasting and valuation

According to the company's inventory impairment and performance forecast, the preliminary impairment test company's proposed inventory price reduction in 2023 is 1 billion yuan to 1.2 billion yuan, which is expected to reduce net profit to mother by 850 million yuan to 1.02 billion yuan. We lowered our profit forecast for 2023-2025. We expect the company's EPS to be -0.1, 0.80, and 1.12 yuan respectively in 2023-2025 (previous forecasts were 0.67, 0.89, and 1.17 yuan, respectively). The closing price on January 19, 2024 corresponds to 18 times PE in 2024 (13 times PE in 2025). We are optimistic that the internationalization of the company's formulations will continue to break through from variety to volume, and maintain a “buy” rating.

Risk warning

Risk of price fluctuations of heparin APIs, risk of collecting major varieties, risk of production quality accidents, competition risk, and risk of exchange rate fluctuations.