2023 results missed; focus on four core therapeutic fields
SBP reported a soft set of 2023 results with revenue up 0.7% YoY (excluding discontinued operations), below market consensus ad BOCI estimates. Adjust net profit increased by +1.5% YoY to RMB2.59bn, thanks to dedicated cost control. We expect SBP to return to double-digit growth in 2024 thanks to sales ramp-up after NDRL inclusion of Yilishu and biomilars, growth of anlotinib on label expansion, and NDA approval of PD-L1, partially offset by weak performance of Ganmei. Cut TP to HK$4.2 and maintain BUY rating.
Key Factors for Rating
2023 results missed: SBP delivered soft 2023 results with revenue up by 0.7% YoY (excluding discontinued operations), below BOCI estimates, mainly dragged by the disappointing sales of oncology and hepatitis segment. Hepatitis medicines declined by -16.2% YoY in 2H23, which we attribute to the pricing pressure of Tianqing Ganmei due to regional centralized procurement. By segment, oncology/ hepatitis/ respiratory system/ surgery & analgesic/ cardio-cerebral medicine recorded YoY changes of -4.2%/ -0.4%/ +1.4%/ +9.0% /+2.5%, respectively.
GPM eroded by 1.8ppts to 81%, while selling and marketing expense ratio optimized by 2.6ppts to 35% on the dedicated cost control, with output per sales staff increasing by 4% YoY in 2023. R&D expense inched up by 6% YoY to RMB4.3bn (or 16.8% of revenue), partially due to the acquisition of F-star, with 77% of expenses devoted to R&D of innovative drugs. SBP expects the R&D expenses ratio to remain at current level in the future. Attributable net profit dropped by 8% YoY to RMB2.33bn in 2023 and adjust net profit increased by +1.5% YoY to RMB2.59bn.
More focus on core treatment field: In 2023, SBP disposed of the equity interests in three subsidiaries engaged in commercial distribution business and CT Tongyong. Besides, in Dec 2023, the company adopted the plan for disposal of 67% of interest in CP Qingdao, which engaged in osteoporosis and marine pharmaceuticals, and decreased its shares to 26%. SBP will continue to divest and align its non-core assets in 2024 in order to focus on its four core therapeutic areas, per management.
Valuation
Post results, we lowered our 2024/25E revenue by 9%/10%, mainly on disposal revenue from CP Qingdao (like calcitriol and paricalcitol, etc.) and decreasing revenue contribution from Tianqing Ganmei. We expect SBP to deliver 11% YoY topline growth thanks sales ramp-up after NDRL inclusion of Yilishu and biosimilars, growth of anlotinib on label expansion, and PD-L1 approval, partially offset by soft performance of Tianqing Ganmei due to price cut. We expect faster YoY growth in bottom line thanks to dedicated cost control. Cut 12-month DCF based TP to HK$4.2, and maintain BUY (WACC: 10.3% and terminal growth: 2.0% unchanged.)