Key points of investment
Core view: The superposition of one's own operating cycle with the industrial cycle brings greater performance flexibility
We believe that Baiyang Pharmaceutical is a CSO company (sales and service outsourcing company) that has proven its ability to build brands and is gradually focusing on brand operations. It is a scarce target benefiting from supply-side reforms in the pharmaceutical industry.
Looking ahead, under the dual influence of the company's own brand operation and development cycle combined with the pharmaceutical industry cycle, the company's net interest rate is highly elastic: ① changes in the overall revenue structure, and significant increases in gross margin and net profit margin; ② the product structure of brand operation continues to be optimized, and the return on resources brought about by the evolution of the overall life cycle of the product reservoir is expected to increase rapidly.
Brand operation: Model and capability verification, large single products continue to expand. We expect the company's brand operation business may achieve a growth rate of 25%/27%/25% in 2023-2025. ① OTC and health products: We believe that the capabilities and models the company has accumulated in the operation of the “DiQiao” brand have been verified by the success of “Sea Dew” and “Efficacious Skin Care Products”, and big single products may continue to emerge. At the same time, based on the first-mover advantage of online channels, social media marketing, etc., the company is expected to support the continuous launch of new big products and the continuous growth of large stock products through re-segmentation and the launch of new categories, and explore the blue ocean in the Red Sea market. ② OTX and critical cancer drugs: Capability verification and industry trends support the OTX and oncology drug sector to enter a period of steady expansion of new BD varieties. Since 2018, the company has successively cooperated with many MNC companies such as Takeda, Mylan, Astellas, Roche, and AstraZeneca, as well as Shanghai Yizhong, etc., and has formed in-depth partnerships to continue to undertake the operation of new varieties. Scarce and excellent service capabilities may support the sustainability of the new BD variety. ③ Independent incubation of innovative pharmaceutical devices: Artificial hearts were the first to launch, and the independent innovation pharmaceutical device incubation platform opened up space for long-term imagination. In 2023-2025, we expect Baiyang Group to take the lead in releasing artificial hearts, and develop the first domestic nuclear drug product, 99mTc-3pRGD2, or implement it after 2025. We are optimistic about the trend of increasing the share of innovative product structures or support the company's long-term profit generation per capita and further increase in net interest rates. Looking back at the company's development history, its retail sales capabilities have been verified, but the hospital's CSO capability for newly launched innovative pharmaceutical products has yet to be verified. We are optimistic that the company will verify hospital CSO capabilities by helping to independently innovate and incubate products, and open up CSO business space for new local pharmaceutical devices.
Wholesale business: The business structure continues to be optimized, focusing on advantageous regions and fields. We expect the company's wholesale business growth rate in 2023-2025 to be -18%/-11%/0%, respectively, and the retail business growth rate will be -1.5%/5%, respectively. In 2022, the company successively divested its wholesale business in Beijing, indicating that the company may gradually focus its wholesale business on the Shandong region, which has a stronger advantage, while the retail business may accelerate the transformation and expansion of the online platform+offline DTP pharmacy model.
Profit forecasting and valuation
Based on the above analysis, we believe that Baiyang Pharmaceutical is a scarce CSO target in line with supply-side reform trends in the pharmaceutical industry, and is in a window where its own business structure optimization cycle and industrial transformation cycle resonate. We expect the company's revenue for 2023-2025 to be 77.14/89.22/10.363 billion yuan, respectively, with a year-on-year growth rate of 2.72%/15.67%/16.15%; the company's net profit to mother for 2023-2025 will be 6.48/8.79/1,183 billion yuan, respectively, with a year-on-year growth rate of 29.06%/35.58%/34.69%; and the 2023-2025 EPS will be 1.23/1.67/2.25 yuan/share, respectively, March 13, 2024 The closing price corresponds to 29/22/16 times PE, and the first coverage gave a “gain” rating.
Risk warning
Risk of short-term fluctuations in upstream and downstream operations due to accelerated industry clearance; risk of fluctuations in core product sales; risk of new brand expansion falling short of expectations