Key points of investment
The share of innovative drug revenue will continue to rise in 2023, and we are optimistic that the company's performance will maintain high growth under the accelerated implementation of inventory+incremental innovative drugs.
Performance: In line with expectations, revenue grew steadily
Disclosure of the company's annual report results: The Group's revenue in 2023 was approximately RMB 6.608 billion (YOY 4.5%). Among them, revenue from drug sales and promotion services was RMB 6.567 billion, revenue from external licensing was RMB 0.28 billion, and revenue from R&D services was RMB 13 billion. Net profit of $715 million (YOY -23.2%) was achieved in 2023, which we estimate was mainly due to the larger investment income base in 2022 ($254 million). In 2023, non-net profit deducted (net profit from mother, data source: 2023 performance ppt from the company's official website) was 757 million yuan (YOY 12.3%), which is faster than revenue YOY, showing a trend of increasing profitability.
Innovation: The share of innovative drug revenue in 2023 continues to rise. Looking at the disease sector in 2023, revenue from the neurological sector was about RMB 1,969 billion (YOY -13.1%), accounting for 29.8% of total revenue. We estimate the decline was due to the 32.4% reduction in price reduction in the January 2023 health insurance negotiations (see the company's official website performance ppt), which put pressure on sales in the short term. We are still optimistic about the rapid release trend of XianBixin in the stroke sector when it does not meet clinical needs. Revenue from the oncology sector was approximately RMB 1,576 million (YOY 10.2%), accounting for 23.9% of total revenue. We believe the year-on-year growth was driven by continued volume release of Endo, Envida, and triacilide. The autoimmunity sector generated approximately RMB 1,415 billion (YOY 10.5%), accounting for 21.4% of total revenue. Revenue from other sectors was approximately RMB 1,648 million (YOY 22.3%), accounting for 24.9% of total revenue.
There is a strong upward trend in the share of innovative drugs: the company's innovative drug revenue was 4.756 billion yuan (YOY 15.2%), and the share of innovative drug revenue reached 72.0%. Compared with 65.3% at the end of 2022, the share of innovative drugs continued to increase. We are still optimistic that revenue in the 2024-2026 innovative drug sector will continue to grow at a high rate driven by stocks such as Endo, Eramod, Xianbixin, and triacilli, with the addition of new products such as Xianbixin sublingual tablets (expected to be approved for marketing in 2024, refer to the company's official website performance ppt), the insomnia drug Dalilexen (2024 NDA, see the company's official website performance ppt), and the influenza drug ADC189 (2024 NDA, see the company's official website performance ppt).
Profitability: Short-term decline. Profitability is expected to recover 75.4% of gross profit margin in 2024 (year-on-year). Reason: changes in sales structure of innovative pharmaceutical product portfolio+lower comprehensive gross margins of the new products Sennoxin and Cosella (see the company's official website performance ppt). With the expansion of Cosella's real estate/production volume, the company is expected to gradually rise.
In 2023, the non-net interest rate was 11.46% (+0.8pct year over year), with the sales expense ratio falling by 2.3 pcts, the R&D expenses rate falling by 3.60 pcts, and the management expenses ratio increasing by 0.50 pct (see the company's official website performance ppt). We are also optimistic about the trend of increasing the company's profitability as the company's expense ratio continues to be optimized.
Profit forecasting and valuation
The company's return on investment in 2023 is lower than our previous forecast, and considering that the August 2023 industry events may continue to influence the pharmaceutical industry, we lowered the company's 2024-2025 performance forecast. We expect the company's EPS to be 0.37, 0.47, and 0.57 yuan/share in 2024-2026 (previously predicted EPS of 0.66 and 0.75 yuan for 2024-2025), and the closing price on April 18, 2024 corresponds to 13 times the 2024 PE. We are still optimistic that the company's innovative drug inventory+incremental varieties will continue to drive rapid growth in 2024-2026, so we maintain a “buy” rating.
Risk warning
Clinical failure risk, competition risk, sales falling short of expectations, policy risk, measurement risk