Introduction to this report:
The company's overall 2023 results were in line with expectations. Focusing on the four major fields of oncology, liver disease, respiratory, and surgery/analgesia, innovation and transformation continues to accelerate. Operational efficiency continues to improve under multiple measures, and the effect of reducing costs and increasing efficiency is remarkable. Maintain an increase in holdings rating.
Summary:
Maintain an “Overweight” rating. In 2023, the company achieved revenue of 26.20 billion yuan (+0.7% YoY) (excluding discontinued operations), net profit of 2.33 billion yuan (-8.3% YoY), and adjusted non-HKFRS net profit of 2.59 billion yuan (+1.5% YoY). Overall performance was in line with market expectations. Taking into account the company's divestment of some non-core businesses, the 2024/2025 EPS forecast was adjusted to 0.15/0.18 yuan (originally 0.16/0.19 yuan), and the 2026 EPS forecast was added to 0.20 yuan. Maintain an increase in holdings rating.
Innovation and transformation are advancing at an accelerated pace, and each core area has welcomed breakthroughs. In 2023, the company's innovative drug business achieved revenue of 9.89 billion yuan (+13.3% YoY), accounting for 37.8% of revenue (+4.3 PCTs); R&D investment of 4.704 billion yuan (~ 18% of revenue). We expect that as the company continues to advance innovation and transformation in its four core areas, the share of innovative drugs will continue to increase in the future, driving steady growth in performance:
Oncology: Revenue of 8.806 billion yuan in 2023, -4.2% year-on-year. We judge the short-term decline mainly due to changes in the hospital environment. The first third-generation G-CSF ibergistine α was added to the national health insurance catalogue. Bemosubimab (PD-L1) and D-1553 (KRAS G12C) are already in the NDA stage, TQB3616 (CDK2/4/6) is already in phase III clinical phase, and biosimilar drugs such as bevacizil, rituxib, and trastuzu have entered the harvest period. A rich, differentiated pipeline is expected to drive long-term growth in the oncology business.
Liver disease: Revenue of $3,824 million in 2023, -0.4% YoY, basically the same. The company's layout in the MASH field is leading in China. TQA2225 (FGF21) is developing the same target the fastest in China, and Lanifibranor (PPAR) is the first MASH oral drug in China to enter phase III clinical trials.
The breakthrough in the MASH field is expected to further strengthen the company's leading position in the domestic liver disease field.
Respiration: Revenue of 2,967 billion yuan in 2023, +1.4% year over year. Sales of budesonide achieved significant growth, and release of polymyxin E accelerated after inclusion in health insurance. The subsequent R&D pipeline layout includes high-value targets such as ROCK2, TSLP, P2X3, PDE3/4, and IL-4Rα.
Surgery/analgesia: Revenue of 3,749 billion yuan in 2023, +9.0% year-on-year. Flurbiprofen paste continues to be released. Future growth drivers include recombinant human coagulation factor VIII and PL-5 antimicrobial peptides.
The results of reducing costs and increasing efficiency are remarkable. The company's sales expense ratio in 2023 was 35.1%, -2.6 PCTs year-on-year, showing a continuous downward trend. At the same time, it focused on its main business and divested non-core assets such as Chia Tai GM and Chia Tai Qingdao. Under multiple measures, operating efficiency continued to improve, and the cost reduction and efficiency effect was remarkable.
Catalysts: Drug release exceeds expectations; progress in research and development of new products and new indications.
Risk factors: Uncertainty in drug development; commercialization progress falls short of expectations; volume procurement.