Leading specialty glass enterprises, pharmaceutical glass upgrades and growth are accelerating. The company was founded in 2002 and began production of high borosilicate heat-resistant glass and low borosilicate pharmaceutical glass. In 2017-2022, the company's operating income and net profit to mother increased from RMB50/ 50 million to RMB82/120 million, CAGR +10%/+19%. With the acceleration of borosilicate penetration and upgrading, the company's medicinal glass products are steadily being released, gradually replacing daily-use glass, contributing to the main increase in the company's revenue.
Industrial upgrading iterations are accelerating, and the expansion of demand for borosilicate in China has strong resilience.
Consistency evaluation+procurement promotes increased penetration of borosilicate products. In order to ensure consistency with the original drug in terms of quality and efficacy, the State Drug Administration proposed in 2020 that the quality and performance of the injection packaging material should not be lower than that of the original research drug to ensure that the quality of the drug is consistent with the reference formulation, while the original research drug generally uses borosilicate glass as the packaging material. Since 3 or more manufacturers of the same type of drug have passed the consistency evaluation, they will not be able to participate in the collection campaign if the drug has not passed, so collection is expected to promote the implementation of the consistency evaluation and the accelerated replacement of borosilicate products. In the past two years, the consistency evaluation work has been progressing steadily, and the proportion of injections that have passed the consistency evaluation has basically remained close to 50%. Judging from the collection situation, about 80% to 90% of the selected injections are packaged in borosilicate medicine glasses. About 30% of the injectables have passed the consistency evaluation and entered collection. The remaining injections that have passed the consistency evaluation are expected to continue to be in demand for borosilicate vials in the future.
Relevant approvals promote a further increase in industry concentration. The Drug Administration clearly proposed that direct contact with drug packaging materials and containers changed from being reviewed separately in the past. On the one hand, related approval clarifies that pharmaceutical companies are responsible for drug packaging, and also requires a large amount of time and capital costs. Therefore, pharmaceutical companies tend to bind and cooperate with high-quality and strong brand pharmaceutical packaging companies, thereby concentrating their share of the pharmaceutical bottle industry on leading companies.
The pharmaceutical glass industry has broken through in horizontal and vertical expansion, and daily-use glass is expected to improve steadily.
Molded bottles: Molded borosilicate bottles began to be collected in the 7th and 8th batches, and supply companies were limited. Therefore, molded bottle manufacturers had relatively strong bargaining power on products, and the racetrack pattern was superior to controlled bottles. 22Q3 launched its 50,000 ton molded bottle production capacity project. Currently, the planned project has a production capacity of about 58,000 tons. The key technical indicators of the company's borosilicate molded bottles have all passed the requirements of the national standard. Since it has been deeply involved in the pharmaceutical glass industry for many years, the company has formed close cooperative relationships with many well-known large medical enterprises across the country. Currently, the company's borosilicate molded bottles are in the joint approval and declaration stage. Samples have been sent to a number of pharmaceutical companies. Several of them have already initiated formal links, and agreed that the associated and tested pharmaceutical companies are expected to become official customers of the company after the company's product registration is transferred to “A”. The profit flexibility of the company's molded bottle business is expected to be fully released in the future.
Controlled bottles: With the accelerated penetration of borosilicate products, the company's pharmaceutical glass revenue has increased steadily in recent years. 23Q1 pharmaceutical glass's revenue accounted for 46% of the company's revenue, and it is expected that it will continue to increase and contribute to the main revenue growth in the future. Due to the high cost of external procurement of glass tubes used as raw materials for borosilicate control bottles, the company strives to improve profitability through self-production and self-supply. The 22Q4 company's borosilicate glass tube kiln with an annual output of 5,000 tons has been successfully boosted. As production stability improves and technology continues to mature, it is expected that as the glass tube self-sufficiency rate increases, the company's control bottle cost will be reduced, which in turn will lead to an increase in profits.
Household glass: The company's daily-use glass products are mainly heat-resistant and electric light source glass. Affected by changes in demand structure and rising raw material costs, business profits are under phased pressure. In response, the company actively lays out product structure adjustments to cope with market changes. In the future, with the gradual release of production capacity in fund-raising projects, the company's daily-use glass business is expected to improve steadily.
Investment suggestions and profit forecast: As an emerging leader in borosilicate pharmaceutical glass, the company is expected to achieve rapid growth in the horizontal and vertical development of the industry, and performance flexibility can be expected after the volume of borosilicate molded bottles is released; although the traditional daily-use glass business is under short-term pressure, related businesses are also expected to improve under product structure optimization. We expect the company to achieve revenue of 10.3/13.4/1.62 billion yuan in 2023-2025, and achieve net profit of 0.7/17/240 million yuan, corresponding to the current share price PE of 40/18/13.
First coverage, giving a “buy” rating.
Risk warning: The progress of the fund-raising project falls short of expectations, production capacity cannot be absorbed as expected, fluctuations in raw fuel prices exceed expectations, uncertainty in related approval, risk of deviations in market space estimates, and the risk of delays or untimely updates of information on the use of research reports.