The company is a leading supplier of steroidal APIs and has built a whole “intermediate-API-formulation” industry chain. After continuous R&D investment and business expansion after listing, the company has now completed the layout of four major sectors: basic intermediates, high-end intermediates, high-end respiratory specialty APIs, and formulations. The company has achieved R&D breakthroughs in the field of high-end respiratory specialty APIs. It now has production licenses for various APIs such as fluticasone propionate, triamcinide, budesonide, fluticasone furoate, etc., and has mass production capacity. In 2022, revenue of 1,312 billion yuan increased 9.10% year over year, achieving net profit to mother of 42 million yuan, an increase of 15.95% year on year. Revenue for the first three quarters of 2023 was 923 million yuan, down 1.04% year on year, and net profit to mother was 61 million yuan, up 48.06% year on year.

A clear breakthrough has been made in high-end specialty respiratory APIs, and successfully entered the field of finished formulations through the Italian company Lisa Pharma, a subsidiary. The overseas subsidiary Italy Lisa Pharma has more than 20 pharmaceutical products, including triamcinide injections, glutathione (sterile powder and aqueous solution for injection), sucralfate aluminum gel, amikacin (ointment, injections), and atracuronium injections. Among them, sucralfate gel has a wider range of indications than other gastric mucosal protectors, has remarkable curative effects, and is highly safe. The most recommended drug among gastric mucosal protectors is sucralfate.

The company plans to acquire Silver Valley Pharmaceuticals, and the release of respiratory medicine preparations is imminent, opening up the growth ceiling. In October 2023, the company plans to acquire 60% of the shares of Silver Valley Pharmaceutical Co., Ltd. through cash payment. After the transaction is completed, the company will become the controlling shareholder of Silver Valley Pharmaceutical and is expected to complete the share transfer in the near future. Silver Valley Pharmaceutical products include ambroxol hydrochloride solution for inhalation, phenylcycloquine ammonium bromide nasal spray, salmon calcitonin injection, and nasal spray, which have good market potential. Yingu Pharmaceutical covers sales teams and sales channels across the country, which helps listed companies promote and sell pharmaceutical products. The three products continue to be released. Among them, the Class 1.1 new drug phenylcycloquine ammonium bromide nasal spray is an antihistamine allergic rhinitis treatment. The competition pattern is good. It has been included in the guidelines. It is expected to enter the national basic drug catalogue to achieve rapid release. The peak sales value is expected to exceed 1 billion yuan. Inhaled ambroxol hydrochloride solution has been marketed for sale. Currently, it has formed a competitive pattern of 1+3. It has entered the 2023 national negotiation category B catalogue. The inhaled dosage form is conducive to atomization demand and rapid release. We expect a peak sales value of about 500 million yuan. Synthetic salmon calcitonin has two dosage forms, nasal spray and injection. Both are covered by national Class B medical insurance. The spray dosage form greatly improves patient accessibility and convenience. We expect a peak sales value of about 500 million yuan.

Investment advice: 2024 is the first year of the company's transformation into the field of respiratory pharmaceuticals. The release of relevant key products is imminent, opening up the ceiling for future growth. Without considering the Silver Valley merger, the company's net profit for 2023-2025 is estimated to be 0.5/0.8/110 million yuan, the corresponding EPS is 0.24/0.40/0.59 yuan, and the current stock price corresponds to PE 74/45/30 times. In addition, the company plans to acquire Silver Valley Pharmaceuticals. All three products in the Silver Valley Pharmaceutical pipeline are covered by medical insurance, which is expected to achieve rapid volume release, bringing greater revenue and market capitalization growth flexibility. Covered for the first time, giving it a “Recommended” rating.

Risk warning: Market competition increases risk; generic drug risk; policy change risk; collection risk; risk of product development falling short of expectations.