Report summary

Since 2020, the company proposed “second entrepreneurship”, focusing on “innovative drugs+complex formulations with high barriers” to begin the innovation and transformation. Since then, the entire medical industry has experienced the test of COVID-19 and the profound impact of the medical industry rectification. The company's stock price has experienced relatively obvious adjustments, drawing market attention to the company's investment cost effectiveness.

We have sorted out the company's main highlights to provide a reference for investors to understand the company's development stage and evaluate future growth potential.

1. What are the main highlights of the company? What is the current valuation level?

(1) The company has built a high-barrier complex formulation platform represented by microspheres and an innovative drug platform represented by biopharmaceuticals, and has gradually formed a large-scale comprehensive pharmaceutical enterprise with comprehensive business development in formulations, APIs, and diagnostic reagents.

(2) The company focuses on areas of advantage while continuously innovating, focusing on the five major fields of digestion, assisted reproduction, tumor/immunity, mental and metabolic diseases, and has built a rich research pipeline to lay the foundation for the company's long-term development.

(3) The company takes into account development while focusing on shareholder returns. It has accumulated cash dividends of 7.5 billion yuan in the past ten years, and the dividend ratio in 2017-2022 has remained at a high level (3.01%-4.93%).

(4) The company is currently at the bottom of historical valuation. Compared with comparable companies in the same industry, the company's ROE ranking is high for a long time, PE valuation is relatively low, has a high margin of safety, and is cost-effective.

2. How competitive are the company's microsphere products? What are the potential big items?

(1) The company's microsphere industrialization experience is leading domestically, and the progress of the research pipeline is ahead. The company is one of the first enterprises in China to successfully industrialize slow-release microsphere products. Since the first approved Leprorelin microsphere was launched in 2009, the cumulative sales volume was close to 7.5 billion yuan. On May 09, 2023, the marketing application for triprorelin acetate microspheres (1 month) was approved. Overall, the company has formed a good microsphere product echelon. Starting in 2023, it is expected that 1-2 new microsphere products will be reported for production every year, and it has sales channels for corresponding mature products, so it is expected to climb rapidly after launch.

(2) The company's aripiprazole microspheres are expected to lead the development of refined long-term formulations in China, and may develop into more than 1 billion single products. Currently, only domestic long-acting formulations are paliperidone nanocrystals and risperidone microspheres originally developed and marketed domestically, accounting for less than 3% of the market share of antipsychotic drugs. Lisu aripiprazole microspheres will soon be put into production. They are expected to be approved for marketing in 2025. They are expected to lead the development of long-term drugs in China with a first-mover advantage and accelerate the replacement process for short-acting antipsychotic drugs.

3. How competitive are the company's biopharmaceuticals? What are the potential big items?

(1) The company is one of the earliest domestic companies to deploy monoclonal antibody biopharmaceuticals. It focuses on tumor immunity and is supported by innovative vaccines, assisted reproduction, and autoimmunity. At present, the company has established a pipeline echelon for bioanalogs+new drugs, and will gradually enter a key pipeline fulfillment period within 3-5 years.

(2) Simeglutide is leading in domestic research and development. After the original patent expires in 2026, it is expected to rapidly increase the market size with a first-mover advantage, and the long-term peak is expected to reach 1.3 billion yuan.

(3) The company has deployed the first IL-17A/F dual-target drug in China. It is currently in phase 3 clinical phase and is expected to become a similar best-in-class single product. The long-term peak is expected to exceed 1 billion.

IV. Profit Forecast and Valuation

The company is one of the largest comprehensive pharmaceutical companies in China. It has a wide range of businesses and a large number of products. It is gradually entering the implementation period. The new tocizumab and triprorelin microspheres approved in 2023 are expected to contribute new revenue increases. In addition, it has also been newly approved for bunanserin and new indications for iprazole.

We believe that with the approval for listing of a number of potentially large single products, the company will enter a stage of rapid development after the strategic transformation of “innovative drugs+complex formulations with high barriers”. We expect the company's EPS to be 2.16, 2.42, and 2.71 yuan in 2023-2025, and the current stock price is 16 times PE in 2024, maintaining a “buy” rating.

5. Risk Reminder

The risk of price reduction for pharmaceutical products, the risk that products under development will not be approved as expected, and the risk of increased market competition.