Incident: The company released its 2023 annual report, achieving operating income of 5.180 billion yuan (+21.57%), net profit to mother of 1,110 billion yuan (+25.99%), and net profit not attributable to mother of 10.04 billion yuan (+29.35%). On a quarterly basis, Q4 achieved operating income of 1,158 million yuan (-14.11%), net profit attributable to mother of 222 million yuan (-20.56%), and net profit of 225 million yuan (-17.07%) after deducting non-return to mother.

Fresh pulp stations are being mined one after another, and the supply side is expected to continue to accelerate. The company promoted the increase in pulping volume through a number of measures such as 1) focusing on supervision of insurance, regional gridding, and the application of new media; 2) focusing on improving the quality and quantity of fresh pulp stations; 3) strengthening performance evaluation and pulp station management team building work. In 2023, the company achieved a pulping volume of 2,415 tons, an increase of 18.67% over the previous year. Relying on the background of strategic cooperation between Sinopharm Group and local authorities, the company and various affiliated enterprises are actively seeking support from governments and health administration departments at all levels. Up to now, the total number of single plasma collection stations (including substations) has reached 102, a net 19 new pulp stations have obtained a pulp collection certificate in 2023, and 1 new pulp station has obtained a pulp collection certificate in early 2024. As of March 2024, the company has 80 pulp stations, and is preparing to build 22 plasma stations distributed in 16 provinces and autonomous regions across the country.

The three major production capacities are progressing smoothly and are expected to improve the operational quality and efficiency of the blood products business. In 2023, the Yongan factory was put into operation and completed production site changes for products such as factor 8, human immunoglobulin, phlegm, etc.; the Shanghai Blood System Yunnan project completed process verification and MES, SCADA, and DCS system acceptance; and the Lanzhou Blood System Lanzhou project completed structural capping, secondary structure and partial installation of the main workshop (integrated workshop, separation workshop). In the future, as the Yunnan project and the Lanzhou project are gradually completed and put into operation, the company will have three blood products production bases with a single plant with a pouring capacity of more than 1,000 tons, and will exert synergistic effects to continuously improve the operational quality and efficiency of the blood products business.

Breakthroughs have been made in the development of new products, focusing on the incremental contributions of chromatography and the eight factors of recombinant analysis. Through internal technology sharing, the company rationally lays out the research varieties of subsidiary companies, uses a research model of centralized R&D and decentralized registration to shorten R&D time and accelerate the process of new product development and industrialization. 23M9, high-purity hydroxypropyl and injectable recombinant factor 8 developed by Chengdu Rongsheng was approved, ensuring that the company's new immunoglobulins and recombinant coagulation factor products are in the leading position in the domestic industry; in addition, Chengdu Rongsheng's subcutaneous human immunoglobulin injection and recombinant human coagulation factor VIIa for injection are undergoing phase III clinical trials. Chengdu Rongsheng's injectable recombinant human coagulation factor VIII-FC fusion protein and PCC from Guizhou blood have obtained clinical approval.

Profit forecast: We expect the company's net profit to be 1,375 billion yuan, 1,687 billion yuan and 2,055 billion yuan respectively in 2024-2026. The company is a leading enterprise in the blood products industry. It has now entered a new stage of development, and the medium- to long-term accumulation is worth looking forward to. We gave the company a reasonable value range of 25.04-31.71 yuan (corresponding to PB 3.72-4.71X, PS 6.53-8.27X, reference comparable companies, we think the valuation is at a reasonable level), maintaining a “superior to the market” rating.

Risk warning: the risk that the amount of pulp collected does not meet expectations, the risk of increased competition in the industry, and the risk of rising pulp harvesting costs.