Incidents:
1) The company released its 2023 annual report, achieving operating income of 22.82 billion yuan, +7.26%; net profit to mother of 4.302 billion yuan, +10.14% year over year; net profit after deducting non-return to mother of 4.141 billion yuan, +21.46% year on year; net operating cash flow of 7.644 billion yuan, +504.12% year over year; EPS (basic) 0.68 yuan. The results are in line with market expectations.
2) The company released its 2024 quarterly report, achieving operating income of 5.998 billion yuan, +9.20% year on year; net profit to mother of 1,369 billion yuan, +10.48% year over year; net profit after deducting non-return to mother of 1,440 billion yuan, +18.06% year on year; net operating cash flow of 1,255 billion yuan, +486.35% year on year; EPS (basic) 0.21 yuan. The results are in line with market expectations.
Comment:
Innovative drug revenue grew strongly, and the cash flow situation improved significantly: 2023Q1-2024Q1, the company's revenue in a single quarter was 54.92/56.76/58.45/58.06/5.998 billion yuan, respectively, +0.25%/19.51%/2.24%/8.93%/9.20%; net profit attributable to mother 12.39/10.69/11.66/8.29/1.369 billion yuan, year-on-year, +0.17%/10.57%/13.05%/10.48%; deducted Mother's net profit was 12.20/10.23/11.17/7.81/1,440 billion yuan, +3.40%/23.48%/7.14%/117.90%/18.06% year-on-year. In 2023, the company's innovative drug revenue was 10.637 billion yuan (tax included, not including foreign licensing revenue), +22.1%. By the end of 2023, the company had been approved to market 15 Class 1 innovative drugs and 4 new Class 2 drugs domestically, covering various treatment fields such as anti-tumor, analgesic anesthesia, metabolic diseases, and infectious diseases. However, generic drug revenue declined slightly. The second batch of collection involved injectable paclitaxel (albumin binding type) and abiraterone acetate tablets due to factors such as not winning bids and price reductions in most provinces. Sales of the seventh batch of products involved a year-on-year decrease of 702 million yuan year-on-year. The sales volume of the products involved in the seventh batch, which began implementation in November 2022, decreased by 911 million yuan year-on-year. In terms of revenue by product in 2023, anti-tumor revenue was 12.217 billion yuan, with a gross profit margin of 91.82%, a year-on-year increase of 1.63pp; analgesic anesthesia revenue was 3.743 billion yuan, +12.21%, gross profit margin 85.22%, up 1.68pp; contrast agent revenue was 2,742 billion yuan, +0.50% year-on-year, and gross profit margin was 61.14%, a year-on-year decrease of 4.38pp. The cash flow situation improved significantly in 2023, mainly due to increased revenue and faster customer payments, and an increase in cash received from the sale of products.
Continue to vigorously invest in R&D and lead the development of the innovative drug industry: in 2023, the company invested 6.150 billion yuan in R&D, accounting for 26.95% of revenue, of which 4.954 billion yuan was costed, and the R&D cost ratio was 21.71%. The products and indications approved by the company for marketing in 2023 are as follows: Class 1 innovative drugs adbelimab, regagliptin phosphate, orteconazole; Class 2 new drugs dexmedetomidine hydrochloride nasal spray, abiraterone acetate nanocrystals, irinotecan hydrochloride liposomes, hengagliptin metformin sustained-release tablets; the 9th indication of carerizumab and the 3rd indication of apatinib (the two are used in combination for first-line treatment of advanced liver cancer); third indication of pyrrolidine maleate tablets (First-line treatment of HER2-positive recurrent/metastatic breast cancer in combination with trastuzumab plus gadocitaxel) ; 2nd indication of darsilil hydroxyesulfonate (first-line treatment with letrozole or anastrozole for HR-positive, HER2-negative local recurrence, or advanced metastatic breast cancer); 2nd indication of dexmedetomidine hydrochloride nasal spray (for sedation/anxiolytic treatment before general anesthesia surgery for children aged 2-6).
Profit forecast, valuation and rating: Considering that generic drug revenue is declining faster than our previous expectations, we lowered the forecast for 2024-2025 to return to mother net profit of 51.64/6.218 billion yuan (the original forecast was 5.708/6.720 billion yuan, down 10%/7% respectively), and the new forecast for 2026 was 7.450 billion yuan, up 20.04%/20.41%/19.80% year-on-year. According to the latest share capital estimate, EPS is 0.81/0.97/1.17 yuan, respectively. The current stock price corresponds to PE 51/43/36 times, respectively, maintaining the “gain” rating.
Risk warning: Risk of failure in innovative drug development; risk of sales falling short of expectations.