2023 results are in line with our expectations

The company announced 2023 results: revenue of 174 million yuan, a year-on-year increase of 19.3%; net profit to mother - 768 million yuan. The 2023 results are in line with our expectations.

Development trends

Benodat (rekiolensis injection) is being commercialized and is being steadily dosed, and hematomas continue to deepen their layout.

In 2023, Benoda issued a total of 184 patient prescriptions and completed 168 patient responses. In 2023, up to 51% of patients who received Benodar's return treatment received insurance claims, with an insurance coverage ratio of 30-100%. Benoda is covered by 70 commercial insurances and 105 beneficiary insurances. Benoda currently has two approved indications in China, including third-tier LBCL and third-tier FL. The company continues to deepen its product hematoma layout. In January 2024, new indications for recurrent and difficult MCL were accepted by the CDE. The 2L LBCL clinical trial was initiated in 2023. The company expects 2H24 to complete patient enrollment, and the 1L LBCL IIT clinical trial has begun.

The efficiency of commercial operations has improved markedly, and losses have narrowed. In 2023, the company continued to maintain Benoda's high production success rate of 98%. At the same time, the cost reduction plan was carried out smoothly. Domestic replacement of key raw materials was completed, and gross margin increased to 50.7% for the full year of 2023. With further domestic substitution of large-scale production and processes, we expect there is still room for improvement in the future. We believe that the high price of CAR-T and the lack of health insurance coverage are the main reasons affecting product volume. If production costs fall in the future, we think it can provide space for health insurance negotiations, bringing higher sales in exchange for price. In 2023, the company achieved remarkable results in fee control. The cost side continued to optimize and streamline the organization, and sales expenses were reduced by 40.7% year-on-year.

CAR-T products are in the first tier of the world in the field of self-exemption, and many new solid tumor products have been expanded. The IIT trial for SLE has completed the return of 18 patients. The company plans to disclose preliminary safety and efficacy data on 2Q24. The company expects to launch phase II clinical trials in 2024, and communicate with regulators to register different clinical promotion plans. We believe that there is a high demand for treatment of moderate to severe SLE. The company's CAR-T products were the first in the world to expand into the SLE chronic disease field, and are expected to innovate patient treatment methods in the field of self-protection, thereby expanding the market space for CAR-T therapy. The company has also developed a diversified solid tumor pipeline with multiple targets such as GPC3, AFP, MAGE-A4, and DLL3, covering high-incidence tumors in China, including hepatocellular carcinoma and lung cancer.

Profit forecasting and valuation

Due to the company's commercialization team adjustments, sales staff changes, and the progress of CART product non-health insurance payments falling short of our expectations, we lowered our 2024/2025 revenue 22%/49% to $269/410 million. Due to the company's gross margin increase and cost control, we raised our 2024/2025 net profit forecast from -8.30/ -622 million yuan to -733/ -612 million yuan to maintain an outperforming industry rating. According to the DCF model, the target price was maintained at HK$2.40, compared to the current stock price 18.2% upside.

risks

Liquidity risk; progress in the R&D pipeline falls short of expectations; commercialization volume falls short of expectations.