Incident: The company released its 2023 annual report, achieving operating income of 1,468 billion yuan, up 17.4% year on year; net profit to mother of 240 million yuan, up 13.4% year on year; deducted non-net profit of 240 million yuan, up 15.6% year on year.
23Q4 operations exceeded expectations, and the release of ciclosporin continued to accelerate. The company's 23Q4 revenue was 363 million (+47.7%) and net profit to mother was 57.7 million (+552.3%), all exceeding expectations. Looking at the revenue breakdown structure, pharmaceutical manufacturing achieved operating income of 1.09 billion yuan (+32.6%) and medical service revenue of 350 million yuan (-13.5%); of these, gells/eye ointments and eye drops in pharmaceutical manufacturing achieved revenue of 374 million yuan and 663 million yuan respectively, with year-on-year growth rates of 18.4% and 47.9%, respectively. Eye drops are growing at a high rate. We believe that ciclosporin eye drops, the first generic drug for dry eye disease, continued to be rapidly released after entering the medical insurance negotiation catalogue in 2021. The estimated sales revenue for 23 years is 40-450 million yuan. Relying on the huge dry eye market and first imitation status, it is expected that they will be further rapidly released in 24 years. The decline in medical service revenue is mainly affected by the new policy for the sale of low-concentration atropine preparations; in July 2022, a new Internet hospital policy was introduced prohibiting the sale of in-hospital preparations through Internet hospital channels. This policy had a certain impact on the company's revenue and profits in '23. The gross margins of the two major business segments, pharmaceutical manufacturing and medical services, declined slightly by 0.88 pct and 2.34 pct, respectively, over the same period last year. Expense rate situation during the period: 1) The sales expense ratio was 36.4%, a year-on-year decrease of 0.6 pct, mainly due to the high increase in eye drops; 2) the management expense ratio was 10.5%, a decrease of 0.1 pct, which remained stable; 3) The R&D expenses rate reached 11.4% and remained stable.
Low-concentration atropine has been officially approved for marketing, which is expected to drive explosive growth in revenue and performance. On March 11, '24, the company announced that its atropine sulphate eye drops (0.01%) have been officially approved for marketing by the State Drug Administration, and the 10-billion-grade single product is expected to officially start selling at high speed after approval. According to our forecast, low-concentration atropine myopia prevention and control is mainly used in children and adolescents. The total number of myopic people in this age group is nearly 100 million; currently, the annual cost of mainstream atropine in-hospital preparations is about 3,600 yuan. Under neutral conditions, we expect Xingqi products to reach a peak sales value of 10.18 billion yuan in the 3rd full year of marketing (that is, 2027), which will reshape the ophthalmic drug market pattern. Atropine is expected to start rapid volume sales from 24Q2, and the company is expected to usher in a stage of explosive growth in revenue and performance in 2024.
Investment advice: Atropine 2024Q1 was officially approved. Without considering atropine release, the company is expected to achieve revenue of 21.2/26.8/3.08 billion yuan in 2024-2026, achieve net profit of 4.5/6.7/770 million yuan, and maintain a “buy” rating.
Risk warning: Atropine sales fall short of expectations; increased competition for ciclosporin eye drops or risk of price reduction in collection; promotion and sales of traditional ophthalmic products falling short of expectations and risk of entering collection.