FY23 exceeded expectations, and FY24 product sales growth is expected to return to double digits: revenue increased 7.7% year over year to 10.104 billion yuan, of which revenue from innovative drugs and cooperative products increased 37.1%, accounting for 67.9% of total revenue (vs. 53.4% in 2022); GSK authorized cooperative down payment confirmed revenue of about 600 million yuan, accounting for about 62% of innovative drug revenue after exclusion. Net profit increased 26.9% to 3.278 billion yuan, exceeding our expectations and the market, mainly due to: 1) gross profit margin of 89.8% (-1.0 percentage point year over year) slightly exceeding expectations; 2) a sharp increase in income from bank interest and investment income. The R&D/sales expenses ratio was +2.8/-2.9 percentage points to 20.8%/34.9%, respectively. The full year payout ratio is 36% (vs. 23% in 2022).
2024 guidance: The revenue growth rate of products without BD has reached double digits, and innovative drugs account for more than 70% of revenue. Capital expenditure will double from last year's 200 million yuan to invest in R&D headquarters construction.
The pace of distribution of key varieties is strong: Among the main treatment areas, cancer, metabolism and other sectors performed well, with revenue +11.7%/+16.3% respectively. In the oncology sector, Amelot recorded sales growth of nearly 20% in 2023. Despite the price reduction of more than 40% in health insurance negotiations, sales doubled after 1L NSCLC indications were covered. As the impact of the price reduction in 2024 is basically cleared, the company expects annual sales to increase by more than 20% and maintain the 2026 sales target of 6 billion yuan. Revenue from the anti-infective and CNS segments was +1.6%/-8.5% respectively, with sales of Hengmu (amitenofovir) increasing by more than 40%.
Research and development focus in 2024 - Amirac, ADC, GLP-1 dual targets: 1) Adjuvant indications after Amirac surgery are expected to be submitted in 3Q24, 1L NSCLC layout for amiral+ chemotherapy (phase III in progress) and EGFR/c-Met (phase III next year); 2) B7H3 and B7H4 ADC will have further data reading this year/early next year; 3) GLP-1/GIP dual-target drugs will begin phase III weight loss by the end of the year.
Raise the target price and maintain a neutral rating: We raised the company's 2024-25E revenue forecast by 7-14% to reflect a more optimistic Amelco revenue forecast and down payment revenue from the second GSK Authorized Cooperation Agreement. We obtained the company's latest target price of HK$16.0 based on the DCF valuation model, corresponding to 21.6x/24.7x 2024E/2025E P/E (2025E P/E is basically consistent with the historical average). We are optimistic about the company's long-term growth prospects, but considering that key generic drugs and innovative pharmaceuticals still face competitive pressure and the relatively limited potential share price increase (7.5%), we maintain the company's neutral rating.