Key points of investment
Performance: High profit growth in 2023&2024Q1
In 2023, the company's revenue was 1,263 million yuan (YOY 25.24%), and net profit to mother was 289 million yuan (YOY 37.19%). Net profit after deduction was 261 million yuan (YOY 26.38%).
On a quarterly basis, 2023Q4's revenue was 340 million yuan (YOY 42.19%), net profit attributable to mother was 57 million yuan (YOY 131.47%), and net profit after deduction was 67 million yuan (YOY 175.92%).
2024Q1 had revenue of 336 million yuan (YOY 11.08%), net profit of 82 million yuan (YOY 79.14%), net profit after deducting net income of 82 million yuan (YOY 87.43%).
Growth analysis: the volume of high-barrier varieties drives steady growth in the API business, formulation flexibility gradually increases, and attention is being paid to the amount of droprogesterone tablets
Looking at the breakdown, in 2023, the company's API and intermediates business achieved revenue of 1,059 million yuan (YOY 16.06%), and its central vascular revenue of 300 million yuan (YOY 26.94%), mainly due to good sales of eplerenone and bepidoic acid, further expanded market share; anti-tumor revenue of 244 million yuan (YOY 73.63%), mainly due to years of market cultivation, and the acceleration of commercialization of generic drugs from new and old customers, abiraterone acetate sales grew rapidly; women's health revenue was 189 million yuan (YOY-2.86) %), respiratory revenue of 163 million yuan (YOY 7.48%), neurological revenue of 74 million yuan (YOY -26.74%), mainly because competitors' price cuts had a certain impact on the company's sales in the European market; anti-infective revenue of 0.18 billion yuan (YOY -60.32%), mainly due to changes in first-line drug use for HIV treatment in Brazil; other revenue of 70 million yuan (YOY 68.13%). The trade business achieved revenue of 105 million yuan (YOY 18.88%); the formulation business achieved revenue of 90 million yuan.
Looking ahead to 2024, the release volume of high-barrier raw materials such as peptides and small nucleic acids is expected to drive steady growth in the API business; formulation flexibility is gradually increasing, and attention is being paid to the release of didroprogesterone tablets.
High barrier drug types continue to be released, and focus on high-potential varieties. We believe that with the acceleration of commercialization of the company's high-barrier APIs and intermediates (didrogesterone, abiraterone acetate, etc.), new market development for superior varieties, and the release of new production capacity in Yangzhou and Tiantai, revenue is expected to continue to grow steadily in 2024, focusing on the development and commercialization of the company's potentially major products (buvacetam, enzalamide, simeglutide, micronucleic acid, etc.).
As the dose of ddroprogesterone tablets is released, the elasticity of the formulation gradually increases. In June 2023, the company's major product, didroprogesterone tablets (single dose), was approved. Didroprogesterone is the company's first integrated API formulation, and the competitive pattern is good. As of December 31, 2023, didroprogesterone tablets have been listed in 24 provinces and cities, and 1,058 hospitals have been admitted (including community outpatient clinics), achieving sales revenue of 89.85 million yuan, and rapid release. Furthermore, according to the company's official website, didrogesterone tablets (compound), enzalutamide tablets, and simeglutide injections are in the pilot phase, and it is expected that the formulation products will continue to be approved and connected to the growing echelon.
Profitability: 24Q1 gross profit margin and net margin increased significantly year on year. The company's gross sales margin in 2023 was 55.92% (up 4.30pct year on year), and net profit margin to mother was 22.88% (up 1.95pct year on year). On the cost side, the sales expense ratio was 7.98% (up 4.03 pct year on year), mainly due to the increase in sales expenses related to didroprogesterone tablets; the R&D cost rate was 10.84% (down 0.79 pct year on year), the management fee rate was 13.44% (up 0.01 pct year on year), and the financial expense ratio was -1.30% (up 1.44 pct year on year), mainly due to exchange rate changes. In addition, the company generated investment income of 33.1335 million yuan from disposal of subsidiaries.
2024Q1's gross sales margin was 53.68% (up 8.12pct year on year), and the net profit margin to mother was 24.40% (up 9.17pct year over year). On the cost side, the sales expense ratio was 7.19% (up 3.64 pct year on year), the R&D expense ratio was 8.62% (up 0.11 pct year on year), the management cost ratio was 11.13% (down 1.40 pct year on year), and the financial cost ratio was -3.47% (down 4.64 pct year on year).
Looking ahead to 2024, considering that the revenue share of high-margin APIs and formulations is expected to continue to increase, driving the company's gross margin to increase; at the same time, the promotion and sales cost rate of on-the-go droprogesterone tablets will increase; in addition, considering that the company's disposal subsidiary received an investment income of 33.13 million yuan in 2023, we expect the company's net interest rate to decline slightly in 2024.
Analysis of business quality: abundant cash flow and good repayment status
In terms of cash flow, net cash flow from operating activities increased year on year in 2023 and 2024Q1. Among them, net cash flow from operating activities increased by 131.72% year on year in 2023, and “net cash flow from operating activities/net income from operating activities” increased significantly year on year (2023:131.75%; 2022:70.56%), mainly due to increased sales operations and good sales repayment conditions. Looking at the turnover ratio, the fixed asset turnover ratio of the company increased in 2023 and 2024Q1. We are optimistic that the company's operating quality will continue to improve.
Profit forecasting and valuation
We expect EPS in 2024-2026 to be 0.91, 1.16, and 1.46 yuan/share, respectively, and the closing price on April 30, 2024 corresponds to 27 times PE in 2024. We believe that the commercialization of the company's characteristic high-barrier APIs and formulation varieties is expected to support steady revenue and profit growth in 2024-2026, and that the company's technology and product layout in the field of small nucleic acids & peptides is expected to open up medium- to long-term growth space and maintain the “gain” rating.
Risk warning
Production safety accidents and quality risks; risk of formulation promotion falling short of expectations; risk of order delivery volatility, etc.