2023 Earnings Exceed Expectations
The company's revenue in 2023 increased 7.7% year-on-year to 10.14 billion yuan (RMB, same below). After excluding the milestone revenue of about 70 million yuan, pharmaceutical product sales revenue increased 1.1% year over year to 9.40 billion yuan, achieving positive growth and slightly exceeding expectations in the face of generally poor performance of pharmaceutical companies. Among pharmaceutical products, revenue from innovative drugs increased 37.1% year-on-year to 6.87 billion yuan, accounting for 67.9% of the company's total revenue from 53.4% in 2022. The company's gross profit increased 6.5% year over year to 9.07 billion yuan, sales expenses decreased from 37.8% to 34.9%, and shareholders' net profit increased 26.9% year over year to 3.28 billion yuan. Profit exceeded expectations.
The company's revenue is expected to grow steadily in 2024-26E
As revenue for 2023 slightly exceeded expectations, we slightly increased our 2024-25E revenue forecast by 0.04% and 0.1%, respectively. The 2023-26E revenue CAGR is expected to be 12.3%, based on: 1) Amelox will lead a steady increase in oncology drug revenue: oncology drugs account for 61.0% of total revenue in 2023. The company's management said that sales volume increased rapidly after the price reduction negotiations for Amelok, the main innovative drug in the field of oncology drugs, and sales revenue increased by nearly 20% year-on-year in 2023. Amelot's sales volume has continued to grow strongly since 2024, and management expects revenue growth of around 20% in 2024. The company's management said that according to the current clinical trial schedule, Amelox's new indications for post-operative adjuvant treatment of lung cancer and the use of combination chemotherapy are expected to be approved in 2025, so Amelok will lead a steady increase in the revenue of the oncology drug business. 2) The company's management said that under the general poor operating environment in the pharmaceutical industry last year, sales revenue of the company's innovative hepatitis B drug Hengmu increased by more than 40% year-on-year in 2023, and peimoxatide, an innovative drug for kidney disease, also performed well, indicating strong demand for the product. According to our understanding, in the health insurance negotiations at the end of 2023, Hengmu did not cut prices, and there was no significant drop in peimosapeptide. Considering that these products have been on the market in recent years and are in a sales period, we expect steady revenue growth in 2024-26. 3) According to the company's agreement with GSK (GSK US) in the fourth quarter of 2023, the ADC drug HS-20093 will receive a down payment of US$185 million from GSK in 2024. In addition to the down payment, management said that according to the current R&D schedule, the company is expected to receive milestone payments from GSK for the development progress of ADC products starting 2024-25.
The target price was raised to HK$17.90, giving it an “Overweight” rating
As earnings in 2023 exceeded expectations, we raised our 2024-25E profit by 11.0% and 10.9%, respectively. According to the adjusted DCF model, the target price was raised from HK$16.70 to HK$17.90, corresponding to a 15.6% increase and maintaining the “gain” rating.
Risk warning: 1) New drug development is slower than expected; 2) Drug price declines are greater than expected; 3) New drug promotion results are worse than expected.