2023 results fall short of our expectations
The company announced its 2023 results: revenue of 5,523 billion yuan, up 1.4% year on year; net profit to mother of 1,033 billion yuan, up 12.2% year on year; deducted non-net profit of 1,024 billion yuan, up 10.5% year on year.
It fell short of our expectations, mainly due to increased competition in the API industry and market product restructuring.
Development trends
The CDMO project pipeline is getting richer and growing steadily. In 2023, the company's CDMO achieved revenue of 4,079 billion yuan, +19.4% year over year, gross profit margin of 40.3%, up 0.6ppt year on year. By the end of 2023, the company had undertaken 32 commercialization projects, 74 clinical phase III projects, and 902 clinical phase I/II projects. The company continues to promote production capacity layout. The main construction of the Ruibo Taizhou (Phase I) production workshop and supporting facilities has been completed and has entered the equipment installation stage. The company expects some production lines to be put into use in 2024Q2.
The specialty APIs business was briefly under pressure due to the industry cycle. In 2023, the revenue from the specialty APIs and intermediates business was 1,261 billion yuan, -22.9% year-on-year, with a gross profit margin of 32.9%, up 2.4ppt year-on-year. Among them, revenue from central nervous system drugs was 464 million yuan, -17.2%; revenue from anti-infective drugs was 333 million yuan, -43.7% year on year; revenue from non-steroidal anti-inflammatory drugs was 304 million yuan, +5.5% year over year; and revenue from hypoglycemic drugs was 160 million yuan, -18.6% year on year. The sharp decline in API revenue is mainly due to increased market competition, changes in supply and demand in unregulated markets, and market restructuring.
Polypeptide-conjugated drug technology platforms are expanding rapidly. 1) Peptides: In 2023, the company completed the synthesis and delivery of dozens of peptides and successfully delivered the 10-million-grade polypeptide IND project. The peptide GMP production line was put into use in the first quarter. 2) Coupling: Having completed the preparation and delivery of multiple conjugated drug compounds, we expect the number of conjugated drug projects to continue to increase in the future as high-activity laboratories and scale-up production lines are built and put into use, combined with the operation of existing OEB5 grade GMP production lines. 3) Small nucleic acid: Achieve full coverage of production capacity from grams to 100 kg, complete a new special workshop for highly active projects, and further enhance the ability to undertake high-activity projects.
Profit forecasting and valuation
Considering the pressure on the company's API business, we lowered our 2024 profit forecast by 17.9% to 1.283 billion yuan, and introduced a profit forecast of 1,404 billion yuan for 2025.
The current stock price corresponds to the 2024/2025 price-earnings ratio of 12.7 times/10.7 times. Maintaining an outperforming industry rating, but due to a reduction in the pharmaceutical sector's valuation center, we lowered our target price by 34.7% to 21.60 yuan, which corresponds to 16.4 times the 2024 price-earnings ratio and 13.8 times the 2025 price-earnings ratio. There is 29.8% upside compared to the current stock price.
risks
Terminal product sales fall short of expectations, technology upgrades, policy changes, market competition, environmental protection and safety.