Enhua Pharmaceutical released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 1,358 million yuan, a year-on-year increase of 15.16%; realized net profit of 265 million yuan, an increase of 16.64% over the previous year; net profit after deducting non-return to mother was 267 million yuan, an increase of 16.62% over the previous year.
Opinion: The performance is in line with expectations, and we are optimistic that the release of new products will drive long-term growth.
On the revenue side, 2024Q1 continued the steady year-on-year growth trend, and the company's operations developed steadily; the profit side grew faster than revenue, with a net profit margin of 19.54%, an increase of 0.25pp over the previous year. It reflects the good profitability of the company's products. In addition, sales and management expense ratios have all been optimized, and the company's operating efficiency has been continuously improved.
In terms of financial indicators: 2024Q1's sales expense ratio was 32.19%, down 3.50pp from 35.69% in 2023Q1; sales expenses of 437 million yuan increased 3.88% year on year; company management expenses ratio was 3.49%, down 0.81 pp from 4.30% in 2023Q1; management expenses of 47.34 million yuan decreased 6.60% year on year; company R&D expenses of 143 million yuan, up 30.77% year on year; R&D expense ratio of 10.56%, up from 9.30% in 2023Q1 1.26pp, increased investment in R&D. Operating cash flow decreased by 35.90% year on year, and the overall gross profit margin was 70.78%, down 2.55pp from 2023Q1. We believe it was mainly due to the decline in the price of the company's collected products and the development of a relatively low gross profit commercial chain business. In the future, as the impact of collection gradually clears up, the product structure is further improved, and gross margin is expected to return. The company performed well in various financial indicators.
Large varieties have been approved one after another, and the product release space continues to increase. The company's new mechanoselective opioid μ-agonist, oselidine fumarate (TRV-130), has been approved for marketing and included in the medical insurance catalogue through national negotiations. Peak sales are expected to exceed 1 billion yuan. Furthermore, in recent years, new products such as pentanedil, sufentanil hydrochloride, oxycodone injections, and duloxetine enteric capsules have been approved one after another, and achieved rapid growth. Large varieties will further boost the company's performance space, and we are optimistic that the company's specialty narcotics will continue to be released.
Research and development is being accelerated, and the varieties under development contribute to long-term development momentum. According to the company's 2023 annual report, in terms of innovative drugs, the company currently has more than 20 research projects, including 1 phase II clinical research project (NH600001 emulsion injection), completed 3 phase I clinical research projects, and carried out 4 phase I clinical research projects. It is expected that 3 clinical applications for new drugs will also be submitted in 2024; in the field of generic drugs, a total of 41 generic projects have been approved, and 10 are being declared for review, including alfentanyl hydrochloride injections, dizocin injections, pregabalin capsules, clonazepam injections, midazolam hydrochloride oral solution, lacosamide injections, etc.
Actively carry out BD to deepen pipeline accumulation and increase profits. Among the cooperative projects, oxelidine fumarate injection has been approved for marketing, and the Class 1 innovative drug NHL35700 has completed phase 1 clinical research and is expected to enter phase 2 clinical trials in 2024; Protollin, a selective product for Alzheimer's symptoms, has completed phase 1 clinical trials in the US and is expected to enter phase 2 clinical trials within 2024. In February 2024, the company introduced TEVA's VMAT2 inhibitor deuterabenazine tablets, which have been approved by the NMPA to treat chorea and tardive movement disorder (TD) related to Huntington's disease (HD) in adults, and entered the medical insurance catalogue. It is expected to complete sales of 2 to 2.5 billion yuan within 2024-2028. High-quality project cooperation is expected to further enrich the product pipeline and consolidate the company's leading position in the field of central nervous system medication.
Profit forecasting and valuation. The company's net profit for 2024-2026 is estimated to be 1,266 billion yuan, 1,566 billion yuan, and 1,956 billion yuan respectively, with increases of 22.1%, 23.2%, and 25.3%, respectively, and corresponding PE is 19x, 15x, and 12x, respectively. We are optimistic about the company's long-term development and maintain a “buy” rating.
Risk warning: Product approval progress falls short of expectations; risk of failure in innovative drug development; risk of product sales falling short of expectations.