Shandong Pharmaceutical Glass: a leader in the domestic pharmaceutical packaging industry
The company's main products include molded bottles, brown bottles, ampoules, control bottles, butyl rubber stoppers, plastic bottles with aluminum-plastic caps, etc., in six series and more than 1,000 specifications, which are used in various fields such as pharmaceuticals, health products, cosmetics, etc. The company has formed the company's three major pharmaceutical glass production bases in Chengxin, Mianzhu, Sichuan, Kangrui Baotou, and Zibo headquarters, and is the largest manufacturer of molded bottles in China. In 2022, the company's molded bottle products (molded bottle+brown bottle) contributed 62.5% of revenue, controlled bottle products (tube bottles+ampoules) accounted for 5.5% of revenue, and plastic products (butyl rubber stopper+aluminum-plastic bottle) accounted for 6.8%.
Borosilicate glass: the key point of “product upgrade+domestic substitution” of pharmaceutical packaging materials. In 2021, the penetration rate of borosilicate glass in China was 15.4%, far lower than the international average of 70%. The consistency evaluation of injections promotes the upgrading of low borosilicate glass to medium borosilicate glass, and the implementation of related review and approval systems accelerates the concentration of the pharmaceutical packaging industry and catalyzes scale effects. At present, the borosilicate molding process has basically been overcome, but foreign investment still has a significant advantage in controlling the process. In recent years, domestic enterprises have accelerated their entry into the “tubing” industry, and the domestic production substitution process is speeding up.
It has the largest share of molded bottles in China, and is expected to continue to have an advantage in the field of borosilicate molded bottles. Shandong Pharmaceutical's position as the leading manufacturer of glass molded bottles is stable, accelerating the layout of high-end production capacity. The company is in an absolute leading position in the field of molded bottles, accounting for more than 80% of the domestic market. Among high-end products, borosilicate molded bottles began to be released. In 2021, the company's borosilicate molded bottle products nearly doubled in sales volume, and have been used in consistent evaluation varieties of pharmaceutical companies such as Qilu Pharmaceutical and Runze Pharmaceutical. The production capacity layout for molded borosilicate bottles was carried out ahead of schedule, and the “4 billion first-class water-resistant medicinal glass bottles project” progressed steadily.
Accelerate the breakthrough of “pull tube” yield, and the technical barrier for borosilicate glass tubes in borosilicate control bottles is high in simultaneous layout, and the company is working hard to improve yield. Technical barriers to tube drawing are mainly reflected in: high melting temperature; rotating tubes are prone to bubbles; increased boron content makes glass tube size tolerances less than required; low yield and high cost in the bottle manufacturing process, leading to poor domestic market recognition. The supply of most borosilicate glass tubes is still controlled by mainstream foreign companies, and only a few domestic manufacturers can independently produce them. Shandong Pharmaceutical Glass has successfully achieved self-production of borosilicate glass tubes. With the gradual breakthroughs in domestic yield and cost reduction, the inflection point of domestic production replacement is expected to arrive.
New Highlights for 2024: Cost Flexibility and Accelerated Overseas Travel
There is a clear downward trend in soda ash prices, which is expected to contribute to gross profit elasticity. Molded bottles account for nearly 70% of the total raw materials and fuel costs. Assuming that other costs remain unchanged, the sensitivity to the price of soda ash and the gross margin of the molded bottle is calculated. For every 100 yuan drop in the price of soda ash, the gross margin of the company's molded bottle can increase by about 0.46 pct. In addition, the company's export revenue increased significantly in 2023, accounting for about 1/3, mainly due to the volume of brown bottles and ordinary soda-calcium molded bottles in overseas markets.
Investment suggestions: We are optimistic about ① consistent evaluations driving the volume of borosilicate molded bottles; ② continued high growth in overseas sales; ③ profit elasticity due to falling soda ash costs. The company's revenue for 2023-2025 is 49.43 billion yuan, 58.05, and 6.784 billion yuan, respectively, and net profit to mother is 8.15, 10.63, and 1,274 billion yuan, respectively, and corresponding PE is 24, 18, and 15 times higher. Maintain a “Recommended” rating.
Risk warning: risk of fluctuations in raw materials & fuel costs, risk of fluctuations in overseas demand; risk of policy progress falling short of expectations.