Key points of investment:

Incident: The company released the 2023 annual report and the 2024 quarterly report, achieving net profit of 404 million yuan in 2023, a year-on-year increase of 9.9%, achieving net profit of 0.70 million yuan, a year-on-year increase of 6.4%; in 2024, Q1 achieved revenue of 100 million yuan, a year-on-year increase of 27.7%, and realized net profit of 16 million yuan, an increase of 17.4% over the previous year, and realized net profit without return to mother of 15 million yuan, an increase of 143.5% year on year.

The 2023 performance grew steadily, with the pharmaceutical+pharmaceutical research business volume showing the company's revenue in 2023 of 440 million, of which the pharmaceutical business revenue was 180 million yuan, up 31.2% year on year, the API business revenue was 120 million yuan, down 15.1% year on year, pharmaceutical research revenue was 90 million yuan, up 34.6% year on year, custom production revenue was 0.1 billion yuan, down 13.2% year on year, and contract processing business revenue was 0.3 billion yuan, up 5.1% year on year.

The growth in the formulation business stemmed from the collection and release of octreotide, atosibane, and somatostatin; the growth in the pharmaceutical research business stemmed from an increase in projects that met revenue recognition requirements; the main reason for the decline in the API business was a decrease in sales volume compared to valerudine and process optimization of some APIs.

The continued expansion of API production capacity is expected to accelerate the company's performance. The company's current 400kg/year peptide API production capacity is at full production. The fund-raising project “395 kg of peptide API production line project” and the refinancing project “Peptide Innovative Drug CDMO, API Industrialization Project” will gradually be implemented in the future. It is expected that the company's production capacity will be further expanded to help the company accept new orders for APIs.

Profit forecasting and investment advice

We expect the company's revenue for 2024-2026 to be 55/ 71/8.8 billion yuan, up 26%/29%/23% year on year, and net profit to mother will be 1/1.4/170 million yuan respectively, up 42%/39%/21% year on year. Using the comparable company valuation method, the adjusted average PE ratio for comparable companies in 2024 is 30 times. We believe that with the implementation of new production capacity, the company's growth is prominent, and the target total market value for 24 years is 4 billion yuan, corresponding to a target price of 35.7 yuan, maintaining a “buy” rating.

Risk warning

Risk of production capacity expansion falling short of expectations, falling downstream orders for APIs and CDMO businesses falling short of expectations, and falling formulation prices and gross margins exceeding expectations