The company predicts a 15-25% year-on-year decline in net profit in 2023
The company released a performance forecast: Net profit for 2023 is expected to be 876-993 million yuan, a year-on-year decrease of 15-25%; net profit after deducting non-net profit is 865-980 million yuan, a decrease of 15-25% year-on-year.
Key points of interest
The main reasons for the decline in net profit in 2023 are: 1) API demand cycle fluctuations due to factors such as the slowdown in global economic growth, the promotion of localization policies in various countries, and the geopolitical environment. At the same time, industry competition intensified, and the price decline of some products affected the company's profits; 2) Formulations: Domestic collection policies led to a decline in product prices, putting pressure on the growth of the domestic formulation business; 3) the US dollar exchange rate appreciation was small, affecting the company's exchange earnings by about 148 million yuan compared to the same period in 2022. In contrast, we expect strong revenue growth in the US formulation business in 23, with 2023H1 revenue +73.3% year-on-year, and 1H2023 receiving 4 US ANDA numbers (including temporary approval numbers) and completing 2 new product declarations. By the end of June 2023, the company's total 79 products had obtained US ANDA numbers (excluding temporary approval).
The 2 products are collected in the ninth batch, and it is expected that increased concentration will bring flexibility. The company's products, psilodoxine capsules and olmesartan hydrochlorothiazide tablets, are to be selected for the ninth batch of national drugs for centralized procurement. Among them, the proposed quantity of cellodoxine capsules is 759,600 capsules, and the proposed selection price is 0.84 yuan/capsule, to be supplied to Tianjin, Hunan, Liaoning, Guangxi, heparin and Tibet; the proposed quantity of olmesartan hydrochlorothiazide tablets with 20 mg specifications and 40 mg specifications is 318.97/36.19 million tablets, respectively. The proposed selection prices are 0.65 yuan/tablet and 0.94 yuan/tablet, respectively, to be supplied to the provinces of Jiangsu, Hubei, Shaanxi and Ningxia. The procurement period for the products to be selected ends on December 31, 2027.
The innovative drug pipeline is progressing in an orderly manner. On November 5, 2023, the company announced that Huaotai's HB0052 has been approved by the FDA for a new drug clinical trial (IND) application for advanced solid tumors. HB0052 is an antibody-conjugated drug targeting the CD73 antigen. According to current tests and research results, it has excellent anti-tumor effects, good plasma stability, low level of non-specific shedding, long half-life and good pharmacokinetic properties. Toxicological studies have shown good safety and tolerability. We believe HB0052 has become a new generation of cancer treatment drugs. Currently, no CD73-targeting drugs have been marketed in the world. They are at the earliest stage of clinical phase III research, and the competitive pattern is good. As of the announcement date, the company has invested a total of about RMB 38.75 million in R&D expenses on the HB0052 project.
Profit forecasting and valuation
Due to the impact of domestic formulation collection and increased competition in the API industry, we lowered our 2023/2024 net profit by 16.5%/21.0% to 933 million yuan/1,121 million yuan, and introduced net profit of 1,419 billion yuan in 2025. The current stock price corresponds to the 2023/2024 price-earnings ratio of 17.3 times/13.7 times, and the target price reduction of 22.8% to 15.6 yuan corresponds to 24.7 times the 2023 price-earnings ratio and 20.5 times the 2024 price-earnings ratio. Compared with the current stock price, there is 19.3% room to rise, maintaining an outperforming industry rating.
risks
New product development registration risks, quality control risks, safety and environmental protection risks, risk of industry policy changes, risk of price fluctuations of major API products, risk of exchange rate changes.