The 2023 results are in line with expectations, leading to +30% net operating profit in 2024: revenue +4.5% year-on-year to 6.608 billion yuan (RMB, same below). Net profit attributable to mother was 715 million yuan (-23.2% YoY), which decreased mainly due to one-time losses such as Siludi Investment losses; profit before tax increased 20% after excluding other net incomes/losses. By sector, revenue from the neurological sector is -13.1%, which is related to Xianbixin's medical insurance price reduction and industry restructuring, but Xianbixin still recorded a 25%/22% increase in sales/number of patients, adding 800 new listed hospitals; revenue in the field of oncology and self-prevention was +10.2%/+10.5%, respectively. Sales and R&D expense ratios decreased by 2.3/3.7 ppts, respectively, and operating profit margins continued to improve. Management updates 2024 guidelines: revenue increased by 10-15%, net operating profit increased by 30%, gross margin recovered to around 79% (expansion of production volume of Sunoxin and cost reduction after commercialization of Cosella), R&D expenses remained at around 20%, sales expenses may fluctuate slightly with the launch of new products, but will remain at a reasonable level for the industry.
Innovative drugs drive the next wave of high growth: the company's share of innovative drug revenue rose sharply from 65% in 2022 to 72% in 2023. We expect this ratio to continue to rise and reach 80% in 2026, mainly from: 1) With stable pricing, increased guideline recommendation levels, and market access expansion, Xianbixin's sales are expected to resume double-digit growth; 2) 5 new varieties are expected to be launched within the next two years, including Xianbixin sublingual tablets, sulvicitazumab, the insomnia drug Dalirasen, the influenza drug ADC189, and the EGFR monoclonal antibody CMAB009. The company expects total peak sales to exceed 6 billion yuan. As the influence of external factors in the industry gradually weakens, we are optimistic about the possibility that the company's 2024 performance will exceed the guidelines.
Continued improvement in shareholder returns: The company plans to pay a dividend of RMB 0.16 per share at the end of the period, corresponding to a dividend payout rate of 59% (44% in 2022); HK$355 million shares have been repurchased since June 2023. Plans to increase shareholder returns in the future include: 1) raising the maximum share repurchase amount from 500 million yuan to 1 billion yuan, and repurchases will continue to be carried out according to capital market conditions; 2) maintaining a 30-60% year-end dividend ratio.
Maintaining the target price: Based on the company's latest guidelines, we lowered the company's 2024-25E revenue forecast to 7.78 billion yuan/9.37 billion yuan, but also raised the profit margin forecast. Ultimately, the net profit forecast to mother rose slightly to 1.01 billion yuan/1.31 billion yuan. We maintain our target price of HK$11.50, corresponding to 27.0x 2024E PE and 0.9x2024E PEG (based on 32% 2023-26E EPS CAGR). Considering that the company's increasingly mature self-research capabilities and highly differentiated target layout provide more certainty in the medium to long term, we believe that the company's current valuation level is cost-effective and maintains the purchase rating.