Event: The company released its 2023 annual report and 2024 quarterly report.
(1) 2023 Annual Report: In 2023, the company achieved operating income of 1.922 billion yuan, a year-on-year decrease of 22.84%; net profit to mother of 436 million yuan, a year-on-year decrease of 50.93%; net profit after deducting non-return to mother of 410 million yuan, a decrease of 50.27% year-on-year. In 23Q4, the company achieved operating income of 436 million yuan, a year-on-year decrease of 6.31%; net profit to mother of 12.84 million yuan, a year-on-year decrease of 20.33%; net profit after deducting 4.88 million yuan, an increase of 57.42%; gross profit margin of 77.86%, a year-on-year decrease of 0.35 pct; and a net profit margin of 1.21%, a year-on-year decrease of 1.33 pct.
(2) 2024 Quarterly Report: In 24Q1, the company achieved operating income of 744 million yuan, up 30% year on year; net profit of 285 million yuan, up 44.9% year on year; net profit after deducted from mother of 270 million yuan, up 42.74% year on year; gross profit margin of 78.68%, down 1.74 pct year on year; net profit margin 38.15%, up 4.05 pct year on year, significant cost side optimization. If the impact of short-term CRRT emergency procurement revenue in 23Q1 is excluded, the company's main business revenue growth rate in 24Q1 is about 65%. In 24Q1, the company achieved significant growth in performance, and an inflection point in operation was established. (For more details about the company, please refer to our recent in-depth article: “Jianfan Biotech's In-depth Recommendation. The journey of thorns will eventually end, and we can still look forward to a prosperous future”.) The company's Q1 performance improvement was due to systematic adjustments over the past two years and a series of comprehensive top-down reform measures in line with the current situation.
In 2022 to 2023, the company focused on adjusting and reforming the channel inventory and sales management model, as evidenced by paying close attention to team execution, deepening academic promotion, upgrading the organizational structure, optimizing resource investment, changing assessment incentives to focus on use, removing inventory, promoting professional transformation of sales teams, and using informatization to build refined management. According to the company's investor relations records, after a continuous decline in the company's dealer inventory level in the early stages, the company's channel inventory situation is currently at a healthy level, indicating that the reform measures have paid off.
Blood purification patients around the world and China have continued to grow, and there is considerable room for the company to increase its penetration rate in the future.
Patient numbers: The number of kidney replacement patients worldwide continues to grow. The number of kidney replacement patients worldwide exceeded 3 million in 2015, and the number of global kidney replacement patients is expected to exceed 5.4 million by 2030. The incidence of CKD in China is 10.8%, and there are about 120 million patients with chronic kidney disease. The total number of dialysis patients in China has maintained a relatively stable compound annual growth rate of about 10%, but indicators such as the number of new dialysis patients, dialysis prevalence, and incidence rates have all shown an accelerated upward trend in recent years. The total number of hemodialysis patients in China reached 840,000 in 2022. The compound growth rate was 13% in 2012-2022, and the compound growth rate was 10.1% in 2019-2022.
Company penetration rate: (1) Based on the number of patients already covered: As of 2022, the penetration rate of the company's nephropathy products to dialysis patients (number of hemodialysis patients treated in combination with Jianfan hemoperfusion devices/total number of hemodialysis patients) was about 32%, an increase of about 10 pcts compared to 22% in 2019 before the epidemic, and increased by about 9 pcts compared to 2014. It is expected that academic companies will launch authoritative clinical trial results and gradually standardize them Related. (2) Based on market space:
According to estimates, on the domestic side, the company's theoretical sales space for nephropathy is about 26.2 billion yuan, liver disease is about 17.6 billion yuan, and the sepsis field is about 27.1 billion yuan. In addition to various other segments, the total domestic space exceeds 70 billion yuan. If the penetration rate is calculated based on sales amount, then the company's overall penetration rate for the main indications already covered is about 3%-4%, and it is only domestic, while overseas is still far lower than domestic.
Increased frequency of treatment brings flexibility: An increase in the average treatment frequency of Jianfan hemoperfusion patients from 1 to 4 times a month will bring high elasticity. Under the same patient base scale, it can bring 4 times the previous market space, thereby fully offsetting the impact of various forms of price decline that may occur in the future.
New product expansion and internationalization open up the company's medium- to long-term ceiling.
For different conditions such as uremia, liver disease, sepsis, and lupus erythematosus, the company has developed different products such as HA series, KHA series, BS series, CA series, DNA immunosorbent columns, etc., and can also develop different product types for different conditions and treat more types of diseases. In 2022, the company added 5 new product registration certificates (hemodialyzer, hemodialysis powder products with 3 different formulations and citric acid disinfectant) and 1 new product CE certificate, further enriching the range of products in the company's entire blood purification industry chain. Achievements such as new registration certificates are expected to continue to emerge in the future.
Although the company accounts for less than 5% of overseas revenue at this stage, COVID-19 treatment products have strengthened the company's brand influence on a global scale. Combined with the company's increasing emphasis on overseas business, long-term overseas expansion can be expected. Up to now, the company's products have been sold to 92 countries including Germany, Switzerland, the United Kingdom, Italy, Spain, India, Russia, Mexico, and Brazil, covering the fields of kidney disease, poisoning, liver disease, critical illness, rheumatological immunological diseases, etc., and have been covered by 13 national medical insurance including Switzerland, Turkey, Vietnam, Germany, Bosnia and Herzegovina, and Latvia. The company's overseas team continues to grow, promote localization, and hire top experts in the field of international blood purification as medical advisors, such as Professor Ronco (Director and founder of the International Nephrology Research Institute in Vicenza, Italy) and Professor Vanholder (former president of the European Society of Nephrology).
Investment advice:
Buy-A investment rating, 6-month target price of 40.09 yuan. We expect the company's revenue growth rates from 2024 to 2026 to be 108.5%, 33.6%, and 31.9%, respectively, with outstanding net profit growth rates of 147.2%, 32.4%, and 30.0%, respectively; maintaining the investment rating given to Buy-A, the target price for 6 months is 40.09 yuan, which is equivalent to a dynamic price-earnings ratio of 30 times 2024.
Risk warning: Uncertainty in medical industry policies; uncertainty about the release of new products; uncertainty about increasing penetration rate.