Key points of investment:
Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 22.82 billion yuan (YoY +7.26%), realized net profit of 4.302 billion yuan (YoY +10.14%), and realized net profit of 4.141 billion yuan (YoY +21.46%); the company achieved operating income of 5.998 billion yuan (9.20% YoY) in the first quarter of 2024, achieving net profit attributable to mother of 1,369 billion yuan (YoY +10.48%), achieving net profit of 1,440 billion yuan (YoY +18.06%) due to innovative pharmaceuticals not entering the hospital Local pharmaceutical procurement prices were reduced, leading to slightly lower performance expectations in 2023. The fee control effect for the first quarter of 2024 was remarkable, and the cost rate declined further, so the results for the first quarter of 2024 exceeded expectations.
Revenue from innovative drugs has exceeded 10 billion dollars, and financial indicators are improving. According to the company's annual report, the company's innovative drug revenue in 2023 reached 10.637 billion yuan (tax included, excluding external licensing revenue), slightly exceeding the target value of equity incentives. Despite being affected by factors such as changes in the external environment, product price reductions, and entry difficulties, it still achieved a year-on-year increase of 22.1%. Generic drug revenue declined slightly during the reporting period, indicating that innovative drugs were the main growth driver of the company's performance. Various financial indicators were improved, and gross margin increased by 0.84 pct in 23, and the three major expense ratios were improved. The sales expense rate/management expense ratio/R&D expense ratio in 2023 decreased by 1.34 pct, 0.25 pct, and 1.26 pct, respectively, compared to 2022.
The company continues to be driven by advanced platforms, dual engines for chronic cancer diseases, and continues to innovate and upgrade. R&D investment has spawned rich innovation results. Currently, 14 self-developed Class 1 innovative drugs, including Revilumide and carelizumab, are being marketed domestically, and more than 90 independent innovative products are being clinically developed. Nearly 300 clinical trials are being carried out at home and abroad, forming a virtuous cycle of batch marketing, clinical batch, and development batch. The company has also established a number of internationally leading technology platforms, such as PROTAC, molecular adhesives, ADC, bis/multi-specific antibodies, AI molecular design, gamma-deltaT, drug resistance, in vivo pharmacology, molecular dynamics, bioinformation, etc., to provide a strong foundation for innovative research and development.
The process of internationalization continues to advance. In 2023, the company reached 5 external licensing deals, with a total transaction amount exceeding 4 billion US dollars. The US FDA has officially accepted the BLA application for carelizumab. The target review date is May 31, 2024. At the same time, several of the company's projects have obtained clinical trial qualifications in the US, Europe, Asia Pacific and other countries and regions, including HER2 ADC, Claudin 18.2 ADC, TROP2 ADC, HER3 ADC, CD79b ADC, Nectin-4 ADC Innovative tumor products such as ADC and PVRIG-TIGIT dual antibodies have all been developed simultaneously at home and abroad. In the future, the company will expand overseas R&D boundaries and enrich the pipeline of innovative products through various models such as self-research, cooperation, and licensing.
Maintain a “buy” rating. Maintaining the profit forecast for 2024 and 2025, the company's net profit for 2024 and 2025 is expected to be 6.181 billion yuan and 7.578 billion yuan, respectively, adding the 2026 profit forecast. The company's net profit to mother is estimated to be 8.341 billion yuan in 2026. The company has a rich innovation pipeline, the internationalization process continues to advance, and maintains a “buy” rating.
Risk warning: risk of R&D failure, risk of price reduction in collection, risk of releasing innovative drugs less than expected.