The increase in revenue from innovative drugs and external licensing revenue contributed to a rapid increase in the company's profit growth rate in 2023.
Independent research and development and BD cooperation form a differentiated pipeline layout.
Maintain the buying and raise the DCF target price to HK$19.91 (WACC: 9.1%).
Innovative drug revenue continued to grow rapidly in 2023: According to the company's announcement, revenue and net profit to mother of 10.14 billion yuan/3.28 billion yuan were achieved in 2023, +7.7%/26.9% year-on-year. Among them, sales revenue of pharmaceutical products was 9.4 billion yuan, +1.1% year-on-year.
Innovative drug revenue increased 37.1% year over year to 6.87 billion yuan, accounting for 67.9% of the company's total revenue (53.4% in 2022). The main reason for the company's rapid profit growth is the rapid growth rate of innovative drug revenue and the milestone revenue of 700 million yuan in 2023. We forecast a CAGR of 11.5%/8.5% for the company's revenue/net profit for 2023-26.
R&D expenses will continue to grow rapidly in the future: in 2023, the company's R&D expenses reached 2.1 billion yuan, an increase of 23.8% over the previous year, accounting for about 20.8% of the company's revenue. In December 2023, the company's self-developed Class I drug pemoxatide injection was included in the national medical insurance catalogue for the first time. Pemoxatide is mainly used to treat anemia due to chronic kidney disease (CKD).
The company currently includes seven innovative pharmaceutical products in the national medical insurance catalogue. Considering that innovative drugs have become the main driving force for the company's performance growth, we expect the company's R&D expenses to continue to increase to a certain extent. We expect the company's R&D expenses to be 2.25 billion yuan/2.45 billion yuan/2.59 billion yuan in 2023-26.
BD cooperation enriches the company's product pipeline layout: The company insists on independent R&D and external BD cooperation to enhance the product pipeline, forming a R&D pipeline layout with differentiated competitive strength. In terms of licensing, by the end of 2023, the company had introduced a total of nine collaborative projects in the clinical stage, all of which had been approved to carry out clinical trials in China, and two projects in the commercialization stage. The company is also actively seeking external licensing opportunities for its own pipeline products, and completed two external licenses within 2023. In 2023, the company incurred BD project expenses and included R&D expenses of about 229 million, and received a BD license fee of US$85 million from partner GSK.
Maintain the purchase and raise the DCF target price to HK$19.91: According to the 2023 Annual Report, we have lowered the company's revenue forecast and adjusted the company's various expense ratios. We raised the company's sustainable growth rate to 3.5% (previously 2.5%). Our target price is 30x for 2024 P/E, which is 11x higher than the comparable company average. We believe Hanson Pharmaceuticals will receive a valuation premium under the synergy of independent research and development, commercial expansion, the introduction of pharmaceuticals, and strong cash flow.
Risk warning: 1) Innovative drug development falls short of expectations; 2) Drug commercialization falls short of expectations; 3) Risk of not being included in health insurance or collection. 4) Drug price reduction risk; 5) BD cooperation risk.