Key points of investment
The 2023 results are under pressure in the short term. In 2023, the company achieved operating income of 1,814 billion yuan, a year-on-year decrease of 21.24%, net profit to mother of 182 million yuan, a year-on-year decrease of 43.77%, and net profit after deducting non-return to mother of 143 million yuan, a year-on-year decrease of 44.43%. During the reporting period, the company's API revenue was 692 million, a year-on-year decrease of 38.03%, gross profit margin of 13.37%, and a year-on-year decrease of 0.82pp. The decline in performance in 2023 is mainly due to the heparin API industry facing a sharp drop in corporate inventory, a sharp drop in demand, and a sharp drop in the export price and quantity of heparin APIs.
Heparin APIs will hit bottom and rebound, and gross margin is expected to increase significantly. 1) Heparin APIs have cyclical properties. As of March 2024, the price of heparin has fallen back to 3,833 US dollars/kg, which is basically the same as the price level of heparin in 2016. It is already in the bottom range of the heparin cycle. In 2024, 42.8 tons of heparin were exported, an increase of 18.67% over the previous year. The supply and demand relationship continues to improve, and it is expected that a new heparin price upward cycle will gradually begin in 2024. In 2024, Q1's revenue was 461 million yuan, down 24.19% year on year, and net profit to mother was 104 million yuan, up 21.13% year on year. The gross sales margin and net margin were 53.14% (+13.89pp) and 21.98% (+8.24pp) respectively. The cost of upstream raw materials for heparin APIs decreased, and gross margin increased significantly.
The company has no inventory pressure on heparin APIs, and the gross margin of the API sector is expected to increase significantly in the future. 2) The company cooperated with Muyuan Co., Ltd. to establish Henan Qianmu to create a high-end heparin API. Henan Qianmu established a modern one-stop production line from breeding to slaughter to processing. It is expected to be put into operation by the end of 2024 to provide the company with sufficient upstream heparin raw materials to ensure high-quality traceability of the industrial chain. It is expected to enter the original research industry chain and continuously improve profit margins.
Enoxaparin preparations are collected and released, and protease products are actively developing the market. In 2023, the company's formulation division achieved revenue of 1,115 billion yuan, a year-on-year decrease of 5.67%. Sales of heparin sodium encapsulated injections have grown rapidly since their launch, and are expected to become a new growth point for common heparin sodium preparations. Currently, the company's market share of enoxaparin sodium injections is low. In April 2023, the eighth batch of enoxaparin sodium injections from the national collection company won the bid. It is expected that the market share will be increased through collection volume. The company's bid price is high, and the profit margin is still large. The company's pancreatic kinin enzyme accounts for the largest share of sales in sample hospitals, maintaining a market share of over 80%, a wide range of indications, and strong end-user stickiness. Injections are exclusive products, with obvious competitive advantages and a rapid growth trend. Compound digestive enzymes account for the second largest share of sales in sample hospitals. A cooperation agreement has now been reached with Bayer. The Bayer sales team will accelerate the expansion of the OTC market and is expected to become another major product of the company.
Investment in innovative research and development continues to increase. In 2023, the company's R&D expenditure ratio was 5.35% (+1.52pp), and investment in innovative R&D continued to increase. QHRD107 (CDK9 inhibitor) is an innovative drug independently developed by the company to treat AML. Phase II clinical progress is progressing smoothly, the domestic target progress is leading, the oral dosage form is safe, and the market competition pattern is good. It is expected that it will be marketed with conditions in the future with good clinical data. QHRD110 (CDK4/6 inhibitor) has basically completed phase I clinical trials in Australia. In the near future, clinical bridging tests will be carried out domestically. This variety can break through the blood-brain barrier. Compared with similar domestic products, the company differentiates glioma indications. In addition, the company is also steadily advancing products under development for various indications such as acute ischemic stroke and growth hormone deficiency, and is expected to open up the company's second growth curve in the future.
Investment suggestion: Taking into account that heparin APIs will begin an upward cycle of prices, the company's low molecular weight heparin sodium is expected to be released rapidly, and the R&D pipeline is progressing smoothly. We maintain the company's profit forecast for 2024-2025 and add the 2026 forecast. We expect revenue for 2024-2026 to 20.50/24.22/27.32 billion yuan, respectively, net profit to mother of 3.222/3.95/463 million yuan, corresponding EPS of 0.25/0.31/0.36, respectively, and the corresponding PE is 20.61/16.79/ 14.32, maintaining a “buy” rating.
Risk warning: risk of heparin price fluctuations; risk of drug sales falling short of expectations; risk of drug development falling short of expectations.