Continuing operating business results in 2023 are in line with our expectations
The company disclosed 2023 results: Due to the sale of non-core assets in 2023, the year-on-year caliber of 2022 was adjusted. Under the continuing management scale, revenue in 2023 was 26.2 billion yuan (+0.7% YoY), and adjusted net profit was 2.59 billion yuan (+1.5% YoY). It met our expectations.
Development trends
The oncology business declined, and revenue from other sectors increased by single digits. 2023:1) The oncology sector's revenue was $8.80 billion (-4.2% YoY), and 2H23 revenue was $4.59 billion (+1.8% YoY). We believe that the decline throughout the year was mainly due to a decrease in the 1Q23 patient base and PD-1 supply chain issues. 2) The liver disease sector continued to generate revenue of 3.82 billion yuan (+9.2% YoY), and Tianqing Ganmei benefited from the expansion of indications and steady growth. 3) The respiratory sector's revenue was 3.75 billion yuan (+1.4% YoY), 2H23 revenue was 1.29 billion yuan (-8.8% YoY), and sales of Tianqing Suchang (budesonide suspension, the 5th batch of national procurement in 2021) and Tianyun (injectable polymyxin E sodium mesylate, entered medical insurance in January 2023) grew rapidly. 4) The surgical analgesia segment continued to generate revenue of 2.97 billion yuan (+9% YoY), and flurbiprofen gel patches grew rapidly. 5) The cardiovascular sector continued to generate revenue of 2.75 billion yuan, an increase of 2.5% over the previous year.
Innovation has entered a harvest period. 2023: Revenue from innovative products (including innovative drugs and biosimilar drugs) was 9.89 billion yuan, up 13.3% year on year, accounting for 37.7%; R&D expenses were 4.40 billion yuan, and the company expects to maintain a high R&D expenditure rate of 17%. A total of 6 innovative products were launched in 2023, namely limaprost tablets, bevacizumab, long-acting G-CSF, rituximab, trastuzumab, and recombinant human coagulation factor VIII. The company expects PD-L1, ALK inhibitors, ROS1 inhibitors, and liraglutide to be marketed in 2024. The company indicates that innovative products account for 43%/47% of revenue in 2024/2025.
Divestment non-core commercial distribution, osteoporosis, and marine medicine businesses, and focus on core sectors. 1) From October to November 2023, the company sold all of the shares held by Chia Tai GM and the three distribution companies at a price of 440 million yuan (total valuation of 560 million yuan). The four companies had total revenue of 1.14 billion yuan (-9.3% YoY) and net profit of 260 million yuan (loss of 3.59 million yuan in 2022). 2) In February 2024, 67% of Chia Tai Qingdao's shares were sold at a price of 1.8 billion yuan (total valuation of 2.7 billion yuan), and the shareholding ratio was reduced to 26%. In 2023, Chia Tai Qingdao had revenue of 6.4 billion yuan (-57% YoY) and net profit of 230 million yuan (-54% YoY). The decline in revenue was mainly due to the main product calcitriol softgels winning the bid for the 8th batch to be supplied to 8 provinces including Beijing. We estimate that the winning bid price dropped by about 80%.
Profit forecasting and valuation
The adjusted EPS caliber changed due to the divestment of non-core assets. We lowered the 2024 adjusted EPS forecast by 14% to 0.15 yuan, and introduced the 2025 adjusted EPS forecast of 0.17 yuan for the first time. The current stock price corresponds to 16.3/14.9 times 2024/2025e adjusted P/E. Maintaining an outperforming industry rating, due to optimism about the company's innovative product release, the target price was only lowered by 7% to HK$4.2, corresponding to the adjusted P/E for 23.1/21.1x2024/2025e, with 41% upside compared to the current stock price.
risks
The price reduction in collection exceeded expectations, and the progress of product launch fell short of expectations.