Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 21.45 billion yuan, up 12.7% year on year; net profit to mother of 2.46 billion yuan, up 44% year on year; net profit after deducting non-return to mother was 2.37 billion yuan, up 43.8% year on year. 2024Q1 achieved operating income of 6.22 billion yuan, an increase of 10.3% year on year; net profit to mother of 1.03 billion yuan, up 26% year on year; net profit after deducting non-return to mother of 990 million yuan, an increase of 25.7% year on year. The results were in line with expectations.

Columbotai's innovation platform continues to advance, and commercialization is worth looking forward to. In 2023, Colombotai achieved revenue of 1.54 billion yuan (+91.6%), revenue from MSD's licensing and cooperation agreements of 1.53 billion yuan; net profit to mother of 570 million yuan, a year-on-year loss reduction of 6.8%; and MSD initiated three key global phase III clinical trials to trigger related clinical milestone payments totaling $75 million. The company mainly promotes clinical research on more than 10 innovative projects, involving major diseases such as malignant tumors, autoimmunity and inflammation. Among them, the NDA application for SKB264 was accepted and included in priority review for locally advanced/metastatic TNBC, and is expected to be approved within the year; SKB264 for 1L TNBC was recognized as a breakthrough therapy in March 24, and 1L advanced TNBC phase III key clinical trials have been initiated; for locally advanced/metastatic HR+/HER2-BC, which was recognized as a breakthrough therapy in June 23; 2L+ therapy phase III clinical registration has been initiated; for locally advanced/metastatic EGFR mutation NSCLC Phase III (2L) and phase II registration studies (3L) have been approved and enrollment commenced in 2023H2; the phase II study using A167 (platinum-with/without platinum) for wild NSCLC was approved by IND in March '22, and phased efficacy data have been obtained. Overseas, MSD has carried out 7 global phase III clinical studies of SKB264, covering indications such as breast cancer, lung cancer, stomach cancer, and endometrial cancer.

The performance of large infusions exceeded expectations, and the proportion of sealed infusions continued to increase. In 2023, the company's infusion sector achieved sales revenue of 10.11 billion yuan (+7%), sales volume of 4.38 billion bottles/bags (+10.6%), and the proportion of sealed infusions increased by 4.25 percentage points. In the five provinces and regions linked to basic infusion volume and price (including collection), the company achieved effective growth in sales rates falling and net sales revenue increasing. In terms of key varieties, levofloxacin sodium chloride injection was selected in the fifth round of national procurement, ranking first in market share, achieving sales revenue of 490 million yuan (+8%) in 2023; sales of moxifloxacin hydrochloride injection increased 175.1% year on year. The parenteral nutrition segment sold more than 20 million bags in 2023, of which 6.13 million bags were sold in three-chamber bags, and more than 10 varieties were sold. Newly launched, including Duozhen/Dorui industrialized three-chamber bags and Duoyi Xindian parenteral nutrition double chamber bags, etc.

The results in cost reduction and efficiency are remarkable, and the API sector is expected to continue to grow. The antibiotic intermediates and APIs segment achieved revenue of $4.84 billion (+23.8%) in 2023. Benefiting from the recovery in terminal market demand, Twining Biotech achieved revenue of 1.55 billion yuan (+17.3%); cephalosporin intermediates achieved revenue of 960 million yuan (+15%); and revenue of 1.94 billion yuan (+40.9%) for penicillin-based intermediates. 24Q1 antibiotic intermediates and APIs achieved revenue of 1.53 billion yuan (+20%), Chuan Ning Biotech's net profit to mother was 350 million yuan (+101%), and profitability continued to increase.

Profit forecasting and investment advice. EPS is expected to be 1.79 yuan, 2.06 yuan, and 2.37 yuan respectively in 2024-2026, with net profit growth rates of 16.5%, 15.4%, and 14.7%. The company will be given 22XPE in 2024, corresponding to a target price of 39.38 yuan, and a “buy” rating.

Risk warning: risk of falling short of procurement expectations; risk of R&D project failure; risk of fluctuations in raw material prices; risk of changes in fair value, etc.