Leading companies in the field of steroidal raw materials, extending and efficiently advancing the API and formulation industry chain

The company has been deeply involved in the field of steroidal raw materials for many years and has developed into a leading enterprise in the field of steroidal raw materials in China. Strategic transformation began in 2019. Through endogenous growth and extrinsic mergers and acquisitions, the industrial layout of domestic and foreign APIs and formulations was gradually completed, and it has strong execution and promotion efficiency. In 2024, the 60% equity acquisition of Silver Valley Pharmaceuticals was implemented, and the company completed the rapid construction of a domestic pharmaceutical business platform. As the industrial chain continues to expand, the company is expected to achieve continuous optimization of its asset structure and usher in valuation reshaping. Considering Silver Valley's consolidated statement, we expect the company's revenue for 2023-2025 to be 13.4/17.1/2.03 billion yuan, and net profit to mother of 0.47/0.93/128 million yuan respectively, corresponding EPS of 0.25, 0.49, and 0.68 yuan/share, respectively. The current stock price corresponding to PE is 65.80/32.88/23.87 times, respectively.

The competitive advantage in the field of steroidal raw materials continues to be consolidated, and high-end respiratory APIs have entered the harvesting stage

There are 400 types of steroidal drugs in the world. The market size continues to expand, and demand for raw materials is growing steadily. The company has been deeply involved in the field of steroidal raw materials for many years. It has five major parent core series of basic intermediates and more than ten high-end intermediates. The rich product range, advanced process technology, and continuous optimization of the product structure make it expected that the company's leading position in this segment will continue to be consolidated. The company's pharmaceuticals business as a whole showed a steady growth trend. The CAGR was 6.6% in 2018-2022, contributing 1.163 billion dollars in revenue in 2022, supporting the company's diversified development and strategic transformation. The company began to stock high-end respiratory APIs in 2019. Currently, it has obtained production licenses for 9 products, and various products are in the individual/related review stage. After completing the relevant reviews, they can be supplied to cooperating pharmaceutical companies. With the marketing and sale of pharmaceutical products from partner pharmaceutical companies, the company's API business is about to enter the harvesting stage.

The acquisition of 60% of Silver Valley's shares was implemented, and the domestic formulation platform was quickly built, and the synergy was remarkable

The company acquired Lisapharma in 2019 and quickly entered the formulation field, laying a solid foundation for future products to go overseas; the subsidiary and Novecon acted as a planned production base for high-end formulations, and the construction process progressed steadily; in 2024, the 60% share acquisition of Silver Valley Pharmaceuticals was officially implemented, and the layout of the domestic formulation platform advanced rapidly. Silver Valley Pharmaceutical has 3 formulation products (the innovative drug piritine is a major respiratory product) and a complete R&D, production and marketing system. In particular, it has a good first-mover advantage and market competitiveness in the field of respiratory drugs and inhalation dosage forms. The acquisition of Silver Valley Pharmaceuticals is in line with the company's strategic layout to extend the formulation industry chain. It has also effectively filled the gap in channel sales in the terminal market, and achieved 1+1>2 synergy. In the future, the company will rely on the mature platform of Silver Valley Pharmaceutical to continuously enrich the formulation pipeline, rapidly promote industrial upgrading, and enter a new stage in the development of the whole integrated intermediate-pharmaceutical-formulation industry chain.

Risk warning:

The risk of policy changes in the pharmaceutical industry; the risk that market competition increases the risk; the risk that product development and marketing progress falls short of expectations.