2023 and 1Q24 results are in line with our expectations
Biotech Co., Ltd. announced its 2023 and 1Q24 results: The company achieved revenue of 1,598/348 million yuan in 2023/1Q24, +4.6%/-4.4% year on year, net profit due to mother was 284/106 million yuan, +34.6%/-1.0% year on year, and net profit after deducting non-mother was 2.54 billion yuan, +29.7%/-5.3% year over year, in line with our expectations.
Development trends
Sales of foot-and-mouth disease vaccines are under pressure, and non-foot-and-mouth disease products support revenue growth. In 2023, the company's main biopharmaceutical business was +1.35% year-on-year to 1,471 billion yuan. On the one hand, the farming market was sluggish and overall demand in the vaccine industry was under pressure; on the other hand, the company's non-foot-and-mouth disease products expanded smoothly, driving the company's endogenous growth. Looking at product segments: 1) Foot-and-mouth disease vaccine: -11.5% year-on-year sales in 23, which we believe is mainly due to reduced farmers' demand for epidemic prevention and intense competition in the foot-and-mouth disease vaccine market; 2) Non-foot-and-mouth disease vaccines: the share continues to increase, including the pig ring series, blue ear, ruminant vaccine, etc., and the sales volume of the company's round branch dual, pig ring, and bovine dual vaccine was +109.3%/+24.6%/+22.9%, respectively.
Profitability continues to recover, stemming from product structure optimization, cost reduction and efficiency. 1) Gross profit margin: The overall gross margin of the company in '23/1Q24 was 57.7%/60.0%, compared to +4.0ppt/+1.1ppt, and continued restoration. We believe that this is due to the increase in the proportion of non-foot-and-mouth disease products with high gross profit levels and the continued effectiveness of foot-and-mouth disease vaccine cost reduction; 2) Cost side: 23/1Q24 sales expenses rates were +2.2ppt/+0.1ppt, respectively, mainly due to the continuous expansion of the company's marketing channels and a large increase in corresponding expenses; the management expenses ratio was +1.2ppt/+1.0ppt, respectively. Due to the impact of the shareholding plan, R&D expenses were +0.2pp/+1.9ppt, respectively, and the company continued to invest in research and development of anti-plague vaccines and other projects. Under the combined influence, the company's profitability continued to increase, and net interest rates due to mother in '23/1Q24 were +17.7%/+30.3% year-on-year, respectively.
Product matrices such as anti-measles and non-foot-and-mouth disease swine vaccines continue to be improved, and there is plenty of potential room for growth of non-plague vaccines.
1) On the product side, the company's non-foot-and-mouth disease vaccine and ruminant vaccine products are gradually being improved, which is expected to continue to contribute to revenue growth and increase the profit center; moreover, the non-plague vaccine developed by the company in cooperation with the Chinese Academy of Sciences has entered the efficacy evaluation stage, and if commercialized, it is expected to open up the company's medium- to long-term space; 2) On the R&D side, the company will forward-looking layout mRNA platform construction, and announced that it will enter multiple mRNA animal vaccine registrations one after another in 24 years. We believe that if R&D progresses smoothly, it is expected that the company's overall R&D strength and comprehensive competitiveness will be enhanced through the marketing portfolio; 3) On the marketing side, the company's overall R&D strength and comprehensive competitiveness will be enhanced through the immunization portfolio; 3) On the marketing side, the company's immunization portfolio is expected to improve the company's overall R&D strength and comprehensive competitiveness; 3) On the marketing side, the company's immunization portfolio is expected to enhance the company's overall R&D strength and comprehensive competitiveness; 3) On the marketing side, the company's immunization portfolio will improve, Promoting comprehensive solutions such as the “Iron Triangle” linkage will help accelerate the penetration of the Group's customers and enhance stickiness.
Profit forecasting and valuation
Based on the fact that the farming economy is still slowly recovering, we lowered our 24-year net profit forecast of 6% to 360 million yuan, and introduced a 25-year forecast of 460 million yuan. The current stock price corresponds to 28/22 times P/E for 24/25. Based on profit forecast adjustments, the target price was lowered by 8% to 11 yuan, corresponding to 34/27 times P/E in 2024/25, with 24% upside. Maintain an outperforming industry rating.
risks
Market competition intensified; product promotion fell short of expectations; aquaculture industry fluctuated.