1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 448 million yuan, a year-on-year decrease of 44.36%; net profit to mother of 155 million yuan, a year-on-year decrease of 10.74%, corresponding to earnings of 0.30 yuan per share, deducted from mother of 127 million yuan in non-net profit, a year-on-year decrease of 7.63%, in line with our expectations.
Development trends
The decline in merger volume was mainly due to transfers to Fuda Pharmaceutical and Tianan Pharmaceutical. According to the company's 2023 semi-annual report, from January to June 2023, the company's drug distribution business (Fuda Pharmaceutical) achieved revenue of 536 million yuan and net profit of 24.97 million yuan; the diabetes business (Tianan Pharmaceutical) achieved revenue of 59.9 million yuan and net profit of 7.38 million yuan. However, according to the company's announcement, the company has transferred 75% of its shares in Fuda Pharmaceutical and 89.681% of Tianan Pharmaceutical's shares in September and October 2023, respectively. As of April 23, 2024, the company still has 2 wholly-owned subsidiaries (grandchildren) in the non-blood products sector, namely Nanjing Xinbai Pharmaceutical in the biochemical business and Jiangxi Boya Xin and Pharmaceutical in the chemical pharmaceutical business.
Non-platelet peeling led to improved profit margins. In 1Q24, the company achieved consolidated gross profit of 304 million yuan, corresponding to a gross profit margin of 67.8%, an increase of 20.4ppt over the previous year, mainly due to the transfer of Fuda Pharmaceutical and Tianan Pharmaceutical. According to the company's 2023 annual report, the gross margin of the company's blood products business was 69.74%, and the gross margin of Fuda Pharmaceutical's distribution business was 11.13%. In 1Q24, the company achieved a consolidated net profit margin of 33.9%, an increase of 12.8ppt over the previous year. The company's 1Q24 sales expenses reached 104 million yuan, a year-on-year decrease of 34.36%, and the sales expense ratio was 23.2%. According to the company's announcement, this was mainly due to the impact of transfers to Fuda Pharmaceutical and Tianan Pharmaceutical and a decrease in investment in current market activities.
The company continues to promote commercialization and research and development of new blood products. In 1Q24, the company's R&D expenses reached 19.01 million yuan, an increase of 90.36% over the previous year, and the R&D expense ratio was 4.2%. This was mainly due to the impact of the company increasing R&D investment according to R&D progress. According to the company's announcement, as of March 2024, the company's intravenous human immunoglobulin (IVIG) (10%) has completed the clinical summary report and entered the reporting stage; vascular hemophilia factor (vWF) has entered the clinical trial stage and subjects are being enrolled; and C1 esterase inhibitors have been approved for clinical trials. In February 2024, the company announced that its intravenous human immunoglobulin had also obtained drug registration approval in Pakistan. We believe that with the continuous launch of the company's products, the rich product line is expected to lay a solid foundation for the continuous improvement of the company's plasma utilization rate.
Profit forecasting and valuation
Taking into account the improvement in the company's gross margin and the decline in sales expenses, we raised our 2024/25 net profit by 5.3%/4.4% to 549 million yuan/624 million yuan. The current stock price corresponds to 28.6/25.2 times the 2024/2025 price-earnings ratio. We maintain a “outperforming industry” rating, but due to an increase in profit forecasts and an upward shift in the valuation center of the blood products sector, we raised our target price by 20.0% to 36.00 yuan, which corresponds to 33.0 times the 2024 price-earnings ratio and 29.0 times the 2025 price-earnings ratio. There is 15.5% upside compared to the current stock price.
risks
The progress of adding new pulp collection stations falls short of expectations; plasma supply falls short of expectations; product development falls short of expectations; and the country's key monitoring of rational drug use may lead to a decline in demand.