Incidents:
On April 18, 2024, Hengrui Pharmaceutical released the 2023 Annual Report and the 2024 First Quarter Report. The company achieved operating income of 22.82 billion yuan in 2023, up 7.26% year on year; net profit to mother was 4.302 billion yuan, up 10.14% year on year; net profit after deducting non-return to mother was 4.141 billion yuan, up 21.46% year on year. In the single quarter of 2024Q1, revenue was 5.998 billion yuan, up 9.20% year on year. Net profit to mother was 1,369 billion yuan, up 10.48% year on year, and net profit without return to mother was 1,440 billion yuan, up 18.06% year on year.
Investment highlights:
Innovative achievements are gradually being implemented, driving the revenue growth of innovative drugs. In 2023, the company's innovative drug revenue reached 10.637 billion yuan (tax included, not including foreign licensing revenue), an increase of 22.1% over the previous year. In 2023, the company's 3 Class 1 innovative drugs (adbelimab, reguglitin phosphate, orteconazole) and 4 new Class 2 drugs (dexmedetomidine hydrochloride nasal spray, abiraterone acetate nanocrystals, irinotecan hydrochloride liposomes, and hengliflozin metformin sustained-release tablets) were approved for marketing. By the end of 2023, the company had been approved to market 15 Class 1 innovative drugs and 4 Class 2 new drugs in China. The newly approved innovative drug has excellent efficacy, highlights clinical advantages and brand value, and sales revenue continues to grow steadily. The accessibility of innovative drugs newly entered the national health insurance catalogue has been greatly improved. In 2023, 3 innovative drugs (revirumide, darucilide, and hengagliflozin) will officially implement health insurance prices, further contributing to the increase in performance. The company's generic drug revenue declined slightly in 2023. The second batch of collection involved injectable paclitaxel (albumin binding type) and abiraterone acetate tablets. Sales decreased by 702 million yuan year on year due to factors such as not winning the bid and price reduction in most provinces. The seventh batch of collection, which began implementation in November 2022, involved a year-on-year decrease of 911 million yuan in product sales.
Continue to build R&D platforms, strengthen source innovation and international cooperation. In 2023, the company continuously improved the various technical platforms already established, initially built multi-specific antibodies and dual-antibody ADC platforms, actively explored new molecular model platforms such as PDC, AOC, DAC, and mRNA, and tried to develop platforms for structural biology and AI drug development, etc., with remarkable results. At the same time, the company actively explores exchanges and cooperation with multinational pharmaceutical companies and leading global pharmaceutical companies from a global perspective to achieve rapid transformation of R&D results, accelerate integration into global pharmaceutical innovation networks, and maximize product value. In 2023, the company has reached 5 external licensing deals, with a total transaction amount of more than 4 billion US dollars.
Profit forecast and investment rating According to the company's operating conditions, and considering the subsequent listing and sales volume of the company's innovative drug pipeline, we adjust the profit forecast appropriately. We expect the 2024-2026 revenue to be 25.407 billion yuan/28.998 billion yuan/33.104 billion yuan, corresponding to net profit attributable to mother of 5,093 billion yuan/6.792 billion yuan/8.299 billion yuan, corresponding to PE of 55/41/34X. We have long been optimistic about the company's competitiveness and internationalization potential in the field of innovative drugs, and maintain a “buy” rating.
Risks indicate the risk that product sales fall short of expectations; the risk that R&D falls short of expectations; the risk of overseas expansion falling short of expectations; the risk of rising raw material costs; and the risk of changes in industry policies.