Weigao's performance is in line with our expectations
The company announced its 2023 results: revenue of 13.2 billion yuan, down 3.8% year on year, up 1% year on year after deducting products related to the epidemic during the same period; net profit to mother was 2 billion yuan, down 27.6% year on year; net profit to mother excluding special projects was 1.98 billion yuan, down 28.8% year on year. The company's results are in line with the January 30 forecast and are in line with our and market expectations.
Free cash flow in 2023 was $2.2 billion, up 34% year over year. It is proposed to pay a year-end dividend of $0.0943 per share and a dividend for the full year of 2023 (plus an interim dividend of $0.0734 per share) of $0.163 per share, with a dividend rate of 38% (27% in 2022).
Development trends
Overall 2023 results were under pressure, and the company directed revenue growth of 5-10% in 2024. 2023:1) Medical devices: Revenue of 6.96 billion yuan (+2.7% YoY). After deducting the impact of the high base of epidemic prevention materials, the year-on-year increase was about 10%, and sales of major products all grew by more than 20%. Segment profit margin decreased by 4 bps to 15.1% year on year. After deducting the impact on exchange gains and losses, it decreased by 2 bps year on year, mainly reflecting the impact of collection price reduction. We expect low single-digit growth in 2024. 2) Pharmaceutical packaging: Revenue of 2.02 billion yuan (-3.9% YoY), remained flat after deducting the impact of COVID-19 orders, mainly due to the decline in demand for downstream pharmaceuticals. Segment profit margin declined 2.5 bps to 40.1% year over year. We expect single-digit growth in the prefilled syringe market in 2024, and it remains to be seen if contracts are renewed for the collection of syringes. 3) Orthopedics: Revenue of 1.27 billion yuan (-37.6% YoY), and the number of major product terminals surgeries increased by more than 20%. We believe 2H24 orthopedics has good restorative growth. 4) Blood management: Revenue of 1.04 billion yuan (-5.1% YoY), and revenue from blood bag consumables remained flat; revenue from Rados' blood irradiation equipment fell 14%, mainly due to a decrease in US government medical expenses. The sector's profit fell 44% year over year to 120 million yuan. 5) Interventions: Revenue of $1.93 billion (+11.9% YoY), segment profit margin 1.2%, EBITDA profit margin of 28.5%. The company's results will indicate that loan replacement was completed in early March, and the debt interest rate dropped from 8% to 6.8%.
Actively promote internationalization and cultivate new growth points. 1) Overseas revenue in 2023 increased 7% year-on-year to 3.4 billion yuan, accounting for 26%. Pharmaceutical packaging and blood management supplies have made breakthroughs in Southeast Asia and Latin America. The company aims for 5% market share for pre-filled syringes in Europe and the US within the next 3 years. 2) In 2023, R&D expenses were 593 million yuan (+7% YoY), and R&D personnel increased by nearly 100 to 1,370; 3) The company expects domestic GLP-1 and self-immune medium- and long-term bioproducts to be launched one after another after 2025. Demand for automatic safe drug delivery systems will increase significantly, and the market space is hundreds of millions. The company announced that it has signed early cooperative development agreements with more than 30 pharmaceutical companies. Industrialization will be implemented in 2024, and the company plans to share 30% of the domestic market in 2027.
Profit forecasting and valuation
The core earnings forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 8.7/7.7 times 2024/2025E adjusted P/E. The outperforming industry rating and target price of HK$7.5 remain unchanged, corresponding to 13.4/11.9 times 2024/2025E adjusted P/E, with 53.7% upside compared to the current share price.
risks
The reduction in procurement prices exceeded expectations, and the launch progress of new products fell short of expectations.