Revenue growth is steady, and innovative drugs continue to be released. The company's total revenue in 2023 was $22.82 billion (+7.26%).
The main business is pharmaceutical manufacturing revenue of 22.377 billion yuan (+5.49%), of which revenue from innovative drugs includes tax of 10.637 billion yuan (+22.1%), and we forecast that revenue after tax will account for 45%; generic drug revenue declined slightly year-on-year, mainly due to the loss of contract renewals for the second batch of collected varieties, albumin paclitaxel and abiraterone acetate, and sales of the seventh batch of collection-related varieties, which began implementation in November 2022, continued to decline. Both decreased by 702 million yuan and 911 million yuan, respectively. Separated by product type, the company's revenue in the fields of anti-tumor, anesthetic analgesia, contrast agents and comprehensive products in 2023 was 122.17 (+7.99%), 37.43 (+12.21%), 27.42 (+0.50%), and 36.74 (-4.20%) billion yuan, respectively. On a quarterly basis, the company's 23Q1-24Q1 revenue was 54.92 (+0.25%), 56.76 (+19.51%), 58.45 (+2.24%), 58.06 (+8.93%), and 59.98 (+9.20%) billion yuan, respectively, and continued to increase from month to month.
Sales expenses and R&D expenses were reduced, leading to faster profit growth than revenue. The company's net profit in 2023 reached 4.302 billion yuan (+10.14%), after deducting non-net profit of 4.141 billion yuan (+21.46%).
While maintaining a gross margin of 84.55% (+0.94pct), the company reduced the sales expenses ratio and R&D expenses ratio to 33.20% (-1.33pct) and 21.71% (-1.26pct), respectively, leading to rapid profit growth. We believe that the decrease in the sales expense ratio is mainly due to the company's continuous sales reform, cost reduction and efficiency; the decline in R&D expense ratio is mainly due to a slight decrease in the company's overall R&D investment (-3.09%). On a quarterly basis, the company's net profit for 23Q1-24Q1 was 12.39 (+0.17%), 10.69 (+21.17%), 11.66 (+10.57%), 8.29 (+13.05%), and 13.69 (+10.48%) billion yuan, respectively, with a positive month-on-month trend.
Sales are continuously adjusted to enable the company's business development. In 2023, the company continued to optimize the sales organization structure, increase the number of specialized medical and marketing teams, and further reduce the number of first-line sales staff. By the end of the year, the company's commercial network had covered 2,500 tertiary hospitals, 17,000 level-I and second-level hospitals, and 250,000 retail pharmacies, and formed a sales team led by the central medical and marketing department and coordinated by regional departments.
In addition to continuing to be deeply involved in mature fields such as anti-tumor, anesthesiology and analgesia, and radiography, the company has also built a dedicated team for metabolism, self-prevention, retail promotion, and DTP.
R&D advantages continue to be highlighted. In 2023, the company launched 3 new Class 1 drugs and received 14 NDAs. The number of pipeline projects entering Phase I-III was 30, 35, and 12, respectively. By the end of the year, the company had launched a total of 15 Class 1 new drugs.
Profit forecasting and investment advice. We forecast the company's net profit for 2024-2026 to be $57.98, 68.26, and 7.955 billion yuan, respectively, up 34.8%, 17.7%, and 16.5% year-on-year, while EPS was 0.91, 1.07, and 1.25 yuan respectively. Considering that the company is a leader in the field of innovative drugs in China, using the PEG valuation method, we gave it a rating of “superior to the market” by 46-58 times PE in 2024, corresponding to a reasonable value range of 42.00-52.50 yuan. Risk warning: R&D innovation falls short of expectations; industry policy risks; market competition increases risk.