Results for '23 and 1Q24 are in line with our and market expectations
The company announced 2023 and 1Q24 results: 2023 revenue of RMB 22.82 billion (+7.3% YoY), net profit to mother of RMB 4.30 billion (+10.1% YoY); 1Q24 revenue of RMB 6.0 billion (+9.2% YoY), and net profit to mother of RMB 1.37 billion (+10.5% YoY). The results are in line with our and market expectations.
Development trends
The share of innovative drugs increased, and performance recovered under changes in the general environment. The company's 1Q23-1Q24 revenue was $54.9/56.8/58.5/60.0 billion yuan, with month-on-month growth rates of 3.0%/3.3%/3.0%/-0.7%/3.3%, respectively, and 0.25%/19.5%/2.2%/8.9%/9.2%, respectively; net profit to mother was 12.4/10.7/11.7/8.3/1.37 billion yuan, respectively, with year-on-year growth rates of 0.17%/21.2%/10.6%/13.1%/10.5%, respectively. Revenue from innovative drugs in 2023 was 10.64 billion yuan, accounting for 46.6% of total revenue, a significant increase compared with 38.1% of innovative drugs in 2022. PD-1 monoclonal antibodies, carelizumab, hitripopa, pirolitinib, and thiopefigestine contributed a lot of revenue. 4Q24 confirmed a down payment of $25 million with One Bio (which has been acquired by GSK), and 1Q24 received a down payment of 160 million euros from Merck as an external license obligation. Revenue has not yet been confirmed. We expect to further increase our performance in the future.
Cash flow is steady, and we expect to maintain high operating efficiency for 24 years. In 2023, the company's gross profit margin was 84.6% (+1.0ppt YoY), and the sales expense ratio for 1Q23-1Q24 was 30.4%/35.4%/29.6%/37.4%/29.4%, respectively. Sales expenses were confirmed to fluctuate slightly from season to season. The management expense ratio for 1Q23-1Q24 was 9.9%/9.5%/10.1%/12.8%/9.6%, respectively. R&D expenses for 23 years amounted to 4.95 billion yuan (excluding capitalization), accounting for about 21.7% of revenue, a slight decrease from the same period last year. Net profit margin of 18.9% (+0.5ppt YoY) for 23 years. The company's net operating cash flow in '23 was about 7.64 billion yuan, an increase of 6 times over the previous year, and the recovery was quite obvious.
All-stage layout of innovative pharmaceutical products to increase international cooperation. The company has launched 16 new drugs in China, another 14 marketing applications have been accepted by the NMPA, and 12 clinical trials have advanced to Phase III clinical trials. In '23, the company concluded 5 external licensing deals, with a total transaction value of over US$4 billion. According to the company's announcement, the company expects to further increase global commercialization cooperation in 24 to enrich and develop value for existing pipelines.
We expect that potential major products such as the company's IL-17 monoclonal vanacidumab and the JAK1 oral inhibitor amaxitinib are expected to be approved in 1H24 and 2H24, bringing significant increases in innovative drugs in the next few years.
Profit forecasting and valuation
Due to our judgment on the pace of pharmaceutical industry policies affecting admission and product release in the short term, we lowered the 2024 net profit forecast by 11.5% to 4.76 billion yuan, and introduced the 2025 net profit forecast of 5.46 billion yuan for the first time. Maintaining an outperforming industry rating, the performance of the company's mature products has stabilized, and many major drug innovations are expected to be launched in the near future. Therefore, we maintain a target price (SOTP valuation method) of 54 yuan, which has 29.6% room to rise compared to the current stock price.
risks
Sales of new drugs fell short of expectations; development of new drugs fell short of expectations; generic drug collection prices were reduced or bids were not won.