2023 profit slightly exceeded our expectations

Hualan Biotech announced its 2023 results: revenue of 5.342 billion yuan, up 18.26% year on year, net profit to mother of 1,482 billion yuan, up 37.66% year on year, corresponding to earnings of 0.81 yuan per share and net profit deducted from mother of 1,267 billion yuan, an increase of 41.77% year on year. Net profit slightly exceeded our expectations, mainly due to an increase in gross margin and net interest rate in the company's blood products sector that exceeded our expectations.

Development trends

In 2023, the company's blood products revenue was 2,931 million yuan, up 8.92% year on year, and achieved net profit of 902 million yuan, up 23.87% year on year. According to the company's announcement, human blood albumin revenue was 1,057 billion yuan, up 6.97% year on year, gross profit margin was 57.14%, up 7.32ppt year on year; Jingjing revenue was 845 million yuan, up 8.96% year on year, and gross profit margin was 53.75%, up 1.74ppt year on year. By the end of 2023, the company had 32 single plasma collection stations (including sub-stations). Among them, the Xiangcheng County and Qi County plasma stations are proceeding with the construction of single plasma collection stations as planned. The company expects 1H24 to be completed and passed the inspection. The company's pulping volume in 2023 was 1,342.32 tons, a year-on-year increase of 19.59%. We expect that with the new pulping station being put into use, the company's pulp collection capacity is expected to increase further.

In 2023, the company's vaccine sector had revenue of 2,410 billion yuan, an increase of 32.03% over the previous year, and achieved net profit of 860 million yuan, an increase of 65.49% over the previous year. According to the company's announcement, the company obtained a total of 94 batches of influenza vaccine batches in 2023, including 73 batches of quadrivalent influenza vaccine (adult dosage form), 15 batches of quadrivalent influenza vaccine (children's dosage form), and 6 batches of trivalent influenza vaccine, ranking among the highest in China. In February 2023, Hualan Vaccine announced that it has successively obtained “Drug Registration Certificates” for freeze-dried human rabies vaccine (Vero cells) and adsorbed tetanus vaccine, further enriching the product pipeline.

The company issued the “Shareholder Return Plan for the Next Three Years (2024-2026)”, which plans to maintain a high dividend ratio and actively give back to shareholders in the future. According to the company announcement, the company plans to distribute a cash dividend of 3 yuan (tax included) for every 10 shares to all shareholders, for a total of 549 million yuan. According to the company's plan, the company plans that the annual cash dividend amount for 2024-2026 should not be less than 30% of the net profit achieved for the year 2024-2026, or the total amount of cash dividends for three years should not be less than 30% of the total net profit for 2024-2026 on the premise that the company is profitable and has no major investment projects, that cash can meet the company's continuous operation and long-term development, and that the cash dividend meets the requirements for cash dividends.

Profit forecasting and valuation

Considering the increase in the company's net profit from blood products, we raised our net profit forecasts for 2024 and 2025 by 8.0% and 5.0% to 1.69 billion yuan and 1.96 billion yuan respectively. The current stock price corresponds to 21.9 times and 18.8 times the price-earnings ratio for 2024 and 2025, respectively. We maintain the company's “outperform the industry” rating. Considering the increase in profit forecasts, we raised our target price by 7.6% to 24.2 yuan, corresponding to 26.3 times and 22.6 times price-earnings ratios in 2024 and 2025, respectively. The upward space compared to the current stock price is 20.0%.

risks

Changes in industry policies, negative public opinion on the quality and safety of clinical products, national priority monitoring and rational drug use may lead to a decline in demand, seasonal fluctuations in influenza vaccine sales, and the extent of collection and price reductions exceeding expectations.