Net profit for the 1st quarter of 2024 was in line with our expectations
Huadong Pharmaceutical announced 1Q24 results: operating income of 10.411 billion yuan, up 2.93% year on year; net profit belonging to the parent company was 862 million yuan, up 14.18% year on year, after deducting non-net profit of 838 million yuan, up 10.66% year on year, corresponding to profit of 0.49 yuan per share. After deducting equity incentive expenses and profits and losses from participating R&D institutions, etc., the company's net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 928 million yuan, an increase of 22.45% over the previous year, which is in line with our expectations.
Development trends
The industrial business maintained a steady growth trend, and self-developed products were further promoted. In 1Q24, China and the US East China revenue (including CSO business) was 3.399 billion yuan, up 10.53% year on year; consolidated net profit to mother was 751 million yuan, up 11.67% year on year. In addition, the company's self-developed GLP-1R/GIPR dual-target long-acting polypeptide agonist HDM1005 China's IND application was approved in 2024/3, and the enrollment and administration of the first Chinese phase Ia clinical study was completed in March; the US IND application for HDM1005 for overweight or obesity indications was approved in April. The company's self-developed ADC project HDM2005 submitted an application to China's IND in March 2024 and was accepted.
The distribution business is expected to resume healthy growth starting in the second quarter. In 1Q24, the pharmaceutical business revenue was 6.717 billion yuan, down 1.86% year on year, and net profit was 107 million yuan, up 1.51% year on year. The decline in the company's pharmaceutical commercial revenue was mainly affected by the higher base in the first quarter of 2023.
Domestic business in the medical and aesthetic sector has maintained a good development trend. In 1Q24, the medical and aesthetic sector had a total revenue of 630 million yuan (excluding internal offsets), +25.30% year-on-year. Xinkley Aesthetics, a wholly-owned subsidiary of domestic medical and aesthetic medicine, is actively expanding the domestic market. 1Q24 revenue was 257 million yuan, +22.65% year over year, and 4Q23 +13.38% month over month. Furthermore, as of April 2024, the company's new high-end lidocaine-containing sodium hyaluronate filler, MaiLi Extreme, has successfully reached the main research end in China. The wholly-owned subsidiary Sinclair in the UK continues to expand the global medical and aesthetic market, with consolidated revenue of about 272 million yuan, -4.40% year-on-year. The company expects the growth rate to gradually pick up from the second quarter.
Revenue from the industrial microbiology sector has maintained steady growth. In 1Q24, the company's industrial microbiology sector revenue was +23.00% year-on-year. In the future, as overseas markets expand, the domestic animal insurance business increases online and offline marketing and the commissioning of Hubei Meiqi Health, the company expects the growth rate of the industrial microbiology sector business to accelerate.
Profit forecasting and valuation
We keep our 2024/25 net profit forecast unchanged. The current stock price corresponds to 17.7/15.9 times the 2024/25 price-earnings ratio. We maintain our “outperform the industry” rating and target price of 43.50 yuan, which corresponds to a price-earnings ratio of 23.5 times 2024 and a price-earnings ratio of 21.1 times 2025, with 32.7% upside compared to the current stock price.
risks
The products under development fall short of expectations, and there is a risk of collecting core products.