Core views

On March 29, the company released its 2023 annual report, and the performance was in line with expectations. In 2023, the company's overall performance achieved good growth. Among them, the blood products business maintained steady development, and the amount of pulp collected increased rapidly; low base+increased demand for vaccination contributed to a significant increase in influenza vaccine sales. It is expected that in 2024, the company's pulp collection volume will continue to increase, and sales of blood products are expected to increase further. Sales of influenza vaccines are expected to continue to grow, and Vero vaccinations and tetanus vaccines bring in additional performance. The company announced a shareholder return plan for the next three years to actively reward investors and reflect the company's confidence in long-term development.

occurrences

The company released its 2023 annual report, and the performance was in line with expectations

On March 29, the company released its 2023 annual report, achieving: 1) operating income of 5.342 billion yuan, up 18.26% year on year; 2) net profit of 1,482 billion yuan, up 37.66% year on year; 3) net profit without return to mother of 1,267 billion yuan, up 41.77% year on year; 4) basic earnings per share of 0.81 yuan. The performance was in line with expectations.

The company's profit distribution plan reviewed and approved by the board of directors is to distribute a cash dividend of 3 yuan (tax included) to all shareholders for every 10 shares based on 1,829 billion shares.

The company released the “Shareholder Return Plan for the Next Three Years (2024-2026)” on March 29, and the company issued the “Shareholder Return Plan for the Next Three Years (2024-2026)”. It is expected that the annual cash dividend for 2024-2026 should not be less than 30% of the net profit for the current year, or that the total cash dividend for the three years will not be less than 30% of the total net profit for 2024-2026.

Brief review

Low performance base+reduction in accrued impairment. Annual results grew rapidly year on year. In the fourth quarter of 2023, the company achieved operating income of 1,429 billion yuan, an increase of 56.23%; net profit to mother of 414 million yuan, an increase of 135.85% year on year; net profit after deducting non-return to mother was 361 million yuan, an increase of 166.97% year on year. The 23Q4 company achieved significant growth on the revenue side, mainly due to a low performance base for the same period in '22; the profit side achieved significant growth, mainly due to: 1) rapid growth in sales revenue and relatively fixed sales costs, which led to a 7.3pct year-on-year increase in gross margin; 2) a sharp decrease in accrued asset impairment losses over the same period last year. In 2023, the company's overall performance achieved rapid growth on the basis of the low base in '22; the profit side achieved a rapid increase, mainly due to: 1) the gross margin of the blood products business increased by 2.04pct year on year; 2) the scale of various expenses was relatively fixed, and the cost rate was reduced; 3) the influenza vaccine inventory was significantly reduced at the end of '22, and this portion decreased year on year in '23.

Blood products business: Annual performance grew steadily, and the amount of pulp collected increased rapidly. In 2023, the company's blood products business revenue was 2,926 billion yuan, up 9.22% year on year, accounting for 54.78% of revenue, and a gross profit margin of 54.34% (+2.04pct). By product, human blood albumin revenue was 1,057 billion yuan, up 6.97% year on year; revenue from static propylene was 845 million yuan, up 8.96% year on year; revenue from other blood products was 1,025 billion yuan, up 11.87% year on year. The revenue side of the blood products business has maintained steady growth, mainly benefiting from the increase in demand for blood products driven by the recovery in demand for diagnosis and treatment; gross margin increased year-on-year, mainly due to the increase in factory prices of albumin and hydroxypropyl, compounded by the increase in sales of other blood products, and sales costs were shared.

In 2023, the company accelerated the construction of new single plasma collection stations. Plasma stations in Huangchuan County, Shangshui County, Xiayi County and Yichuan County were completed and successfully obtained the “Single Plasma Collection License”. Dengzhou obtained the “Single Plasma Collection Permit” in February 2024. The plasma station in Xiangcheng County and Qi County is proceeding with the construction of the plasma station according to the plan. It is expected that 24H1 will be completed and accepted. The company currently has 32 pulping stations (including sub-stations), with a pulping volume of 1342.32 tons in 2023, an increase of 19.59% over the previous year. The amount of pulp collected at the pulping station is gradually increasing, which is expected to bring continuous impetus to the company's pulping volume growth. In order to meet future blood product production needs, the company has built a pharmaceutical R&D and intelligent production base. Construction has now been completed and equipment installation and commissioning work is underway. After completion, the workshop will have a processing capacity of 1,860 tons of plasma per year, which will establish the company's leading position in the blood products industry.

Vaccine business: Low base+increased demand for vaccination, driving a sharp increase in influenza vaccine sales. The company's vaccine business revenue in 2023 was 2.405 billion yuan, up 32.30% year-on-year, accounting for 45.02% of revenue; the gross profit margin was 88.32% (-0.17pct), which remained stable. Revenue rose rapidly, mainly due to the low influenza vaccine sales base in the same period in '22, compounded by multiple rounds of influenza in 2023, which spurred increased demand for vaccination. In 2023, the company obtained 94 batches of influenza vaccine batches, 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. The batch volume continues to maintain the leading position in the country. In February 2023, the company successively obtained production approvals for freeze-dried human rabies vaccine (Vero cells) and adsorbed tetanus vaccine, further enriching the product pipeline.

Continue to invest in R&D and innovation to accelerate the expansion of the international market. In 2023, the company invested 283 million yuan in R&D, accounting for 5.3% of revenue. The company continues to implement innovation-driven strategies, and multiple R&D pipelines are progressing smoothly. Among them, clinical research on high-concentration next-generation intravenous human immunoglobulin and recombinant exen-Din-4-FC fusion protein injections is progressing smoothly, and human coagulation factor IX has obtained clinical approval. In terms of vaccines, the company continues to develop mRNA products and novel vaccines such as shingles. In 2023, the company accelerated the expansion of the international market, gradually expanded the international market sales volume of prostatic prophylaxis and influenza vaccines, selling blood products and vaccines to Pakistan, Ghana, Peru, Dominica, Indonesia, Thailand and other countries, supplying 147.262 million yuan.

R&D expenses increased slightly, and asset impairment losses narrowed year-on-year

The company's gross profit in 2023 was 3.717 billion yuan (+24.57%), and the gross profit margin was 69.59% (+3.53 pct). The increase in gross margin was mainly due to the rapid increase in sales revenue and relatively fixed sales costs. The company's 2023 sales expenses were 1.02 billion yuan (+29.33%), sales expense ratio 22.51% (+1.93pct); administrative expenses of 274 million yuan (-3.59%), management fee ratio 5.13% (-1.16pct); R&D expenses of 281 million yuan (-10.76%), R&D expenses rate 5.26% (-1.71 pct); financial expenses -0.2 billion yuan (-117.25%), financial expenses ratio -0.33% (-0.25pct). The sales expense ratio has increased mainly due to the company's efforts to maintain market competitiveness and maintain the increase in sales expenses; all other expense ratios have declined, mainly due to the increase in the revenue base.

The company's net operating cash flow in 2023 was 1,346 billion yuan (+40.59%), due to an increase in cash received from sales of goods and provision of services in the current period. Accounts receivable amounted to 2,296 billion yuan, accounting for 14.25% (-0.89pct) of total assets; inventory of 1,674 billion yuan, accounting for 10.39% (+0.58pct) of total assets; 346 days of inventory turnover and 153 days of accounts receivable turnover days, maintaining a stable level. In 2023, the company accrued asset impairment losses of 91 million yuan, and accrued 157 million yuan for the same period in '22; influenza vaccine inventory had a lot of impairment at the end of '22, and this portion decreased year-on-year in '23.

The “Shareholder Return Plan for the Next Three Years (2024-2026)” was issued, and the main content of the return plan to actively return investors: 1) Form of profit distribution: Use cash, stocks, a combination of cash and stocks, or other methods permitted by laws or regulations, and give priority to the use of cash dividends. 2) Time interval: When the conditions for cash dividends are met, in principle, cash dividends are paid once a year.

3) Profit distribution plan: On the premise of ensuring a minimum cash dividend ratio and a reasonable share capital size and share structure of the company, stock dividend distribution may be considered. The stock dividend for every 10 shares is not less than 1 share, and the annual cash dividend amount for 2024-2026 should not be less than 30% of the net profit realized for the year or the total amount of cash dividends for three years should not be less than 30% of the total net profit for 2024-2026. The company released a shareholder return plan for the next three years, which marks the company's positive return to investors, reflects the company's confidence in long-term development, and is beneficial to the company's future capital market performance.

2024 outlook: Blood products+vaccines are two-wheel drive, and the performance is expected to continue to improve in 2023. The company's overall performance will achieve relatively rapid growth. Among them, the blood products business has maintained steady growth, and sales of influenza vaccines have increased dramatically, driven by a low base in '22 and an increase in vaccination rates. It is expected that in 2024, in terms of the blood products business, the increase in pulp collection at the plasma station will bring continuous impetus to the increase in the company's pulp collection volume, compounded by continued growth in demand for diagnosis and treatment, and help achieve a further increase in blood product sales. In terms of the vaccine business, as public awareness of vaccination increases, the increase in the influenza vaccination rate will drive the company's influenza vaccine sales to continue to grow, and Vero cell vaccine and tetanus vaccines will bring additional performance.

The company actively rewards shareholders, reflects the company's confidence in long-term development, and is beneficial to the company's future capital market performance.

Profit Forecasts and Investment Ratings

We expect the company to achieve operating income of 6.281 billion yuan, 7.187 billion yuan and 8.050 billion yuan respectively, and net profit to mother of 1,668 billion yuan, 1.916 billion yuan and 2.161 billion yuan respectively, up 12.6%, 14.9%, and 12.8% year-on-year respectively. EPS per share is 0.91, 1.05 and 1.18 yuan, respectively. The current stock price corresponds to the 2024-2026 valuation of 21.6X, 18.8X and 16.7X, respectively, giving a purchase rating.

Risk analysis

1. Safety issues of blood products and the risk of monitoring single plasma collection stations. Due to the biological properties of the main raw materials of blood products, based on the current level of science and technology, theoretically there is still a possibility that some unknown pathogens cannot be identified and removed, and the resulting safety issues may adversely affect the company's operations. Continued standardized operation of single plasma collection stations is an important factor in the overall operation of blood products companies. Changes in the regulatory policies of single plasma collection companies may have a certain impact on the company.

2. The growth rate of pulp station construction and pulping volume falls short of expectations: The supply-side growth of the company's products mainly depends on the increase in the number of pulping stations and the increase in single-station pulping volume. If future pulping station construction and slurry volume growth rate falls short of expectations, it will affect the company's future performance and profit level expectations.

3. The progress of development and launch of new products fell short of expectations.