Revenue continued to grow positively in 2023, but earnings fell slightly short of expectations
The company's revenue in 2023 increased 1.7% year-on-year to RMB 31.45 billion (RMB, same below), 2.0% lower than our forecast, but maintained positive growth despite the generally poor performance of pharmaceutical companies. By sector, raw materials (vitamins and antibiotics, etc.), functional foods, and other businesses were affected by product prices. Revenue fell 9.7% and 8.9% year on year, respectively, but revenue from the pharmaceuticals business, which accounts for more than 80% of revenue, increased 4.6% year on year, leading to positive growth in total revenue. Due to reasons such as the collection of the cancer drug Clarion and the price reduction of vitamins after the pandemic, gross margin fell slightly by 1.4 percentage points year on year, and administrative expenses were slightly higher than expected. As a result, shareholders' net profit fell 3.6% year on year to 5.87 billion yuan, 4.5% lower than our forecast.
Oncology drug revenue is expected to pick up in 2024
Due to reasons such as a sharp decrease in revenue after the price reduction of the main product, the company's revenue for cancer drugs fell 16.4% year on year, but the single quarter resumed positive year-on-year growth in the fourth quarter. The revenue growth rate of the sector is expected to pick up significantly from 2024. The revenue CAGR for 2023-26E is 21.0%, based on: 1) the impact of Keaili collection was fully reflected in 2023, and 2) the mitoxantrone liposome injection, which was marketed in early 22, is in the early stages of sales. The bone giant cell tumor drug narusobimab replaces colorectal cancer drugs Yasu Approved in September '23, these products will lead a recovery in oncology drug revenue.
Neurological drugs will maintain steady growth
The company's revenue for neurological drugs increased 12.1% year over year in 2023 and is expected to maintain steady growth in 2024-26, based on:
1) There is still room for growth in sales revenue from the main product: Although EnbiPu has been on the market for many years, it just needed to be strong, and sales revenue grew steadily in 2023. Since the product has been very successful in OTC and e-commerce in recent years, there is still room for improvement in sales revenue. 2) The sales volume of Mingfule, which the company acquired from Guangzhou Mingkang Biotech in 2022, has increased rapidly in the past two years, and was approved for thrombolytic treatment of acute ischemic stroke in early 2024, which will contribute new growth points to the company's neurological business in the future.
The next 5 years will be a new product harvest period, and new drugs in fields such as GLP-1 and ADC are expected to bring new growth points to the company. The company expects more than 50 new products and new indications to be approved in the next 5 years, with a focus on: 1) amphotericin B liposomes and irinotecan liposomes are expected to be approved in the US in 2024; 2) DP303C, an antibody conjugate (ADC) for breast cancer treatment, is expected to be approved in 2025; 3) Simeglutide similar drugs and GLP-1 new drug TG103 for diabetes and weight loss Approval is expected in 2026. If amphotericin B and ilitecan liposomes are approved in the US, they will increase the product's global popularity and product sales. GLP-1 receptor agonists and ADC drugs are on the global circuit. If the product is successfully launched, it will receive attention from the capital market.
Target price adjusted to HK$9.00 to maintain “Buy” rating
Due to slightly lower than expected results for 2023, we lowered our 2024-25E revenue and shareholders' net profit forecasts by 4.5%, 5.6%, 2.6%, and 6.1%, respectively. According to the adjusted DCF model, the target price was adjusted to HK$9.00, maintaining the “buy” rating.
Risk warning: (1) the price reduction of drugs exceeded expectations; (2) the progress of clinical trials and approval of new drugs was slower than expected;