Incidents:

[Business Administration Blfa E_Bu Sum20M4rqy] According to the first quarterly report, 2024Q1 achieved operating income of 448 million yuan, a year-on-year decrease of 44.36%; net profit to mother was 152 million yuan, a decrease of 10.74% year-on-year. Net profit after deducting non-return to mother was 127 million, a year-on-year decrease of 7.63%.

Comment:

The performance was in line with expectations, and the company's profitability improved significantly after the divestment of some non-blooded businesses. The company completed the divestment of the business of Tianan Pharmaceutical and Fuda Pharmaceutical at the end of 2023. Furthermore, the sales base for blood products was high in 2023Q1, driven by COVID-19 demand, leading to an apparent decline in revenue and profit in 2024Q1. However, in terms of long-term development, the divestment of the non-blood business increased the company's overall profitability. 2024Q1's net profit margin to mother increased to 33.90%, an increase of 12.77pcts over the previous year, and the company's overall profitability increased significantly.

The batch issuance of blood products has had a good start, and I am optimistic that the annual performance will continue to improve. 2024Q1 Company's human blood albumin was issued in batches of 15 batches, Jingpropylene was issued in 18 batches, and fibrin was issued in 17 batches. The batch issuance of major products achieved good year-on-year growth. In addition, the company collected 467.3 tons of pulp in 2023, laying a good foundation for the production and sale of blood products in 2024. In terms of pulp station expansion, Taihe Pulp Station and Leping Pulp Station both obtained “Business Licenses” issued by the Market Supervision Administration in November 2023, and are expected to begin official operation within 2024. Considering that the blood products market is still in a tight balance, we believe that the company's performance is expected to continue to improve.

The R&D pipeline continues to advance, which is expected to further enrich the company's product pipeline. Currently, the company's research pipeline includes products such as C1 esterase, vWF factor, high-concentration intravenous human immunoglobulin, and trace proteins, etc., and R&D is progressing smoothly. In the future, the company will focus on advanced deployment around the field of small nucleic acids, gene therapy, immunotherapy, etc., to further broaden the product structure and enhance the company's core competitiveness.

Profit forecast and investment suggestions: Considering only the blood products business, we expect the company to 2024-2026 at $16.49/18.97/2.81 billion, net profit of $548/6.38/695 million, and EPS of 1.09/1.26/1.38 yuan, corresponding to the current market value PE of 29/25/23 times. Compared to companies in the same industry, Liberal Arts Biotech has higher operating efficiency and ranks among the highest in the industry in terms of slurry output, so we maintain the company's “buy” rating.

Risk warning: Pulp harvesting falls short of expectations, terminal price reduction, new pulping station not progressing as expected, etc.