summary

Fuhong Hanlin was the first domestic company to deploy biosimilar drugs. With the launch and rapid release of the differentiated PD-1 slulimab, the company's innovation and transformation continued to achieve profit for the first time, maintaining a rapid volume trend in the third quarter: 2023Q1-3 achieved revenue of 3,928 billion yuan (yoy +84.0%) and net profit of 408 million yuan to mother.

Leading by biosimilars, obvious first-mover advantage, international quality

As of December 2023, Fuhong Hanlin has 4 marketed biosimilar drugs: rituximab, trastuzumab, adalimumab, and bevacizumab. Among them, trastuzumab continued to be released with the advantage of first-mover and differentiated dosage forms. As of August 2023, trastuzumab had already benefited about 140,000 patients in China, and 2023Q1-3 achieved revenue of 2,014 billion yuan (yoy +55.00%).

Innovative transformation continues to advance, and companies with significant advantages of differentiated PD-1 thrulizumab continue to advance innovation and transformation with the idea of “differentiating and targeting not meeting clinical needs”: in the field of small cell lung cancer, ASTRUM-005 studies showed that sleurizumab achieved non-head-to-head optimal data for the same target (PD-1/PD-L1) monotherapy in 1LES-SCLC, so after the introduction of this indication, the 2023Q1-3 achieved sales revenue of about 870 million yuan; in terms of research indications: PD-1 is limited in the first line of sales It is expected to be the world's first immunotherapy for small cell lung cancer, perioperative gastric cancer adjuvant/new adjuvant, and first-line colorectal cancer.

Focus on differentiation and advance efficiently in the research pipeline

Fuhong Hanlin is efficiently promoting innovation and transformation, and has many potential innovative varieties in the research pipeline. Among them, HLX22 is expected to change the first-line standard treatment for HER2-positive gastric cancer, and has great potential for commercialization. In addition, the company introduced Yilian Biotech's ADC technology platform. Two potential FIC/BIC ADCs, including HLX42 (EGFR ADC) and HLX43 (PD-L1ADC), have shown good potential efficacy, which is expected to drive the company's long-term performance growth.

We have mature overseas experience, and the results of internationalization will soon be realized

At the beginning of the company's establishment, “globalization” was an important part of the company's development strategy. As of November 2023, trastuzumab has been approved for marketing in more than 40 countries and regions, including China, the United Kingdom, Switzerland, Australia, Singapore, Argentina, and Saudi Arabia, making it the largest number of domestically produced biosimilar drugs in approved marketing countries and regions. (1) In terms of biosimilar products going overseas: With the potential of pertuzumab as the world's first imitation, the 2022 license with Organon set a new record for the highest number of global biosimilar approvals, and pertuzumab plus desumab is expected to be declared for BLA in 2024. (2) In terms of innovative drugs going overseas: Slulizumab 1L ES-SCLC indications are expected to be approved for marketing in Europe in 2024, and we expect the company's overseas revenue to gradually expand from 2024.

Profit forecasting

We expect the company's total revenue for 2023-2025 to be $50.26/60.57/ 7.522 billion yuan respectively, with year-on-year increases of 56.36%/20.50%/24.19%, respectively; net profit to mother will be $519/659/793 million, respectively.

The company's performance has entered a period of rapid growth, and the first half of 2023 has achieved a historic break-even balance. Considering that subsequent companies' innovation pipeline and overseas layout are expected to usher in a harvest period: (1) differentiated PD-1 slulilizumab in the innovative drug sector has significant curative advantages in small cell lung cancer indications, and the potential for subsequent commercialization of potential indications is worth looking forward to; (2) it has many varieties with differentiated potential in the research pipeline and enters the ADC circuit quickly and efficiently; (3) biosimilar drugs and innovative drugs are expected to be launched intensively in 2024-2025, which is promising for the company's development. The market value of the company is estimated using the DCF method, assuming a WACC of 8.30% and a sustainable growth rate of 0.5%. Considering the liquidity problems in the Hong Kong stock market, the corresponding market value is HK$10.560 billion, and the target price is HK$19.43 per share.

Risk warning: exchange rate risk, market risk, R&D risk, operating risk, measured subjective risk