The company released its 2024 quarterly report: In Q1 2024, the company achieved operating income of 356 million yuan (+71.02% year over year, same below), net profit of 66 million yuan (+215.65%) to mother, net profit of 65 million yuan (+179.69%) after deducting non-return to mother net profit of 65 million yuan (+179.69%).
The profit side met expectations, and the revenue side exceeded expectations. The net profit and non-net profit deducted from the company's quarterly report were all in the median forecast, in line with expectations. Revenue was the highest in a single quarter, with a year-on-year increase of 71%, exceeding market expectations. We believe it was mainly driven by the volume of peptide APIs and formulations.
The scale effect of independent products showed an increase in gross margin, the company had plenty of cash on hand, and increased investment in R&D.
Q1 2024 gross profit margin 67.26% (+11.33pct), sales expense ratio 3.23% (-5.54pct), management expense ratio 19.83% (-1.5pct), R&D expense ratio 18.62% (+8.99pct). In 2024, the company had a cash balance of 499 million yuan at the end of the Q1 period, and there was plenty of cash on hand.
The 10 billion dollar market for simeglutide continues to grow, and generic APIs are being actively deployed. The global market for simeglutide has expanded rapidly in recent years. According to Novo Nordisk's annual report, sales of simeglutide increased 52% year-on-year in 2023. Global related generic drugs and GLP-1 innovative drugs are also being actively developed. As a high-quality upstream peptide company, the company's simeglutide API passed the DMF integrity assessment in 2021 and was approved by FA Letter in December 2023. Simeglutide patents are about to expire one after another. At that time, it will drive the company's peptide business to the next level. For example, the Chinese patent is expected to expire in 2026.
With specialty peptide APIs as the core, we continue to strengthen our superior business. In 2023, the company successively obtained FA letters from Lira and Simei, and the pipeline covers major varieties such as Simei, Liras, Tilpotide, Lanreotide, and Thymus Synthesis. In addition, atorvastatin calcium raw materials also successfully passed the GMP compliance test.
Actively promote workshop construction and support the release of production capacity. In 2024, the Q1 company was constructing 220 million yuan, an increase of 34 million yuan compared to the 23 annual report. The Lianyungang factory already has 2 production workshops for peptide APIs, of which the third-generation workshop (106 workshop) has been put into operation and has built tonns-level production capacity. It is expected that several tons of production capacity will be built by the end of 2025. The company's single batch production of long-chain polypeptide APIs such as Simei has reached more than 10 kg. It is currently the only company with a packaging specification of 1 kg/bag among the five Simei pharmaceutical companies registered by the CDE.
In terms of small-molecule CDMO, the second phase of the Jiande plant's production capacity of 180,000 liters was officially put into use in August 2023, and another 220,000 liters will be put into use in 24, which can provide customized production services from laboratory level to ton level.
Actively expand the oligonucleotide business, and enable convertible debt projects to promote development. The subsidiary Notenol and GMP pilot production lines were successfully put into operation, with a production capacity of 10-20KG, which promoted the transfer of the company's oligonucleotide and peptide processes from R&D to pilot scale-up.
Profit forecast: We are optimistic that the company's customers will continue to expand, and the expansion of independent products will accelerate as downstream products are launched one after another. At the same time, considering the impact of convertible bonds and equity incentives on the cost side, we forecast net profit to the mother in 2024-2026 to be 221 million yuan, 306 million yuan, and 417 million yuan, respectively, compared to 35.7%, 38.4%, and 36.4%, respectively. The corresponding PE is 52X, 38X, and 28X respectively, maintaining the purchase rating.
Risk warning: Sales fall short of expectations, product development progress falls short of expectations, and industry competition intensifies.