Incidents:

On April 9, the company issued an announcement stating that the company will jointly set up a project planning team with Heze Pharmaceutical to promote the company's simeglutide injection pharmacy research and development work and potential clinical efficacy and safety research for the treatment of type 2 diabetes and weight loss. The strategic agreement will be in effect for ten years.

Deepen the layout of the simeglutide industry chain booming circuit

Simeglutide is a GLP-1 receptor agonist. GLP-1R products have benefits such as weight loss, sugar reduction, and cardiovascular benefits. There are two trends in the current development of GLP-1R drugs: first, from injection to oral administration to increase patients' dependence on medication; second, from a single target to use in combination with other targets to enhance weight loss effects. Previously, simeglutide was successfully sold in the US, which shows that it still has a large market space in the fields of diabetes and weight loss. From an R&D perspective, although there is still a certain gap between domestic companies and foreign giants in terms of overall R&D progress, companies with differentiated advantages based on the size and heterogeneity of the diabetes and weight loss markets may still have a place in the market. This time, the company and Ze Pharmaceutical jointly laid out research and development in this field, which is expected to further enrich the company's product pipeline and enhance the company's performance.

Rapid growth in annual results

In terms of performance, in 2023, the company achieved operating income of 11.474.1624 million yuan, an increase of 8.81% year on year; achieved net profit attributable to shareholders of listed companies of 10555.347 million yuan, an increase of 6.69% year on year; realized net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 1026.437,800 yuan, an increase of 22.73% year on year. In terms of R&D investment, the company continued to increase R&D investment, with R&D expenses of 624.8701 million yuan, an increase of 17.25% over the previous year, accounting for 5.45% of revenue. In terms of production capacity, the company's production base is mainly at its headquarters in Dongyang, Zhejiang, and has production subsidiaries in Quzhou, Zhejiang, Weifang, Shandong, and Chizhou, Anhui, etc., and has production service capabilities to meet the three business segments of API intermediates, CDMO and formulations. In terms of product pipeline, the company's product line covers human drugs and veterinary drugs. Among them, human drugs include anti-infective, anti-tumor, cardiovascular, and psychiatric drugs. The sales of the company's own brand formulations are mainly in the domestic market, and the international market is gradually being developed to support the development of the company's drug development and production capacity increase to continuously empower CDMO business development

In terms of CDMO business, during the reporting period, the company's CDMO business achieved operating income of 2.04.9818 million yuan, an increase of 27.10% over the previous year; gross profit of 84.790.65 million yuan, an increase of 31.04% over the previous year, and a gross profit margin of 42.29%. In terms of production capacity, the company's CDMO multi-purpose pilot plant has been put into use, and two new fluid production lines have been added at the same time, enhancing the competitiveness of the company's CDMO business. During the reporting period, the company quoted 905 projects, an increase of 10% over the previous year; 736 projects were in progress, an increase of 40% over the previous year. There are 82 API projects, an increase of 49% over the previous year; of these, 18 have entered the commercialization stage, 10 are in the verification stage, and 54 are in the R&D stage. Overall, the rapid development of the company's CDMO business is expected to provide a continuous impetus for the company's development.

Investment advice:

We expect the company's diluted EPS in 2024-2026 to be 1.01 yuan, 1.20 yuan, and 1.46 yuan, respectively, with corresponding dynamic price-earnings ratios of 12.28 times, 10.34 times, and 8.50 times, respectively. As a leading enterprise in the production and export of chemical raw materials in China, the company's share of CDMO revenue continues to increase, the business structure continues to be optimized, expectations for improving profitability are clear, and the product pipeline is expected to continue to be rich, maintaining the purchase rating.

Risk Warning: Risk of R&D falling short of expectations, policy risk, increased risk of market competition