Jianyou Co., Ltd. released its 2023 annual report. In 2023, the company achieved operating income of 3,931 billion yuan, a year-on-year increase of 5.89%; net profit to mother - 189 million yuan, a year-on-year decrease of 117.37%; net profit after deducting non-return to mother - 168 million yuan, a year-on-year decrease of 115.54%.

Q4 revenue for a single quarter was 789 million yuan, down 8.38% year on year, net profit to mother - 1,029 million yuan, down 659.75% year on year, and deducted non-net profit from mother - 991 million yuan, down 648.45% year on year.

Jianyou Co., Ltd. released its 2024 quarterly report. The company achieved operating income of 1,004 billion yuan in the first quarter of 2024, a year-on-year decrease of 23.19%; net profit to mother was 177 million yuan, a year-on-year decrease of 46.68%; net profit after deducting non-return to mother was 171 million yuan, a year-on-year decrease of 48.12%.

Opinion: Formulation depreciation and low API prices are putting pressure on performance, and pharmaceutical exports have maintained high growth.

On the revenue side, 2023Q4-2024Q1 declined year-on-year. We think it was mainly due to upstream companies being out of inventory and the price of heparin APIs falling; the profit side changed from profit to loss, mainly due to the 23Q4 company preparing 1,244 billion yuan for reduced inventory prices, which affected net profit of 1,053 billion yuan to mother.

In terms of financial indicators, the company's sales expenses rate in 2023 was 10.70%, down 1.47pp from 12.17% in the same period in 2022; the management expense ratio was 3.71%, down 0.76pp from 4.47% in the same period in 2022; R&D expenses increased 41.20% year-on-year, accounting for 9.47% of revenue, 7.10% in the same period in 2022, up 2.37pp. In terms of financial expenses, it was -74.2 million yuan in 2023 and -128 million yuan for the same period in 2022. Net operating cash flow in 2023 was $1,619 billion, an increase of 171.93% over the same period in 2022, and sales payback increased. The company's financial indicators are running well.

Look at it by business sector:

The standard heparin API business achieved a 10.12% year-on-year decline in revenue of 997 million yuan, and the share of the API business continued to drop to 25%.

The formulation business achieved revenue of 2,772 billion yuan, an increase of 12.75% year over year, and continued transformation from a traditional API supplier to an international sterile injection company. Among them, pharmaceutical export revenue exceeded 1.9 billion yuan, up more than 25% year on year, and domestic pharmaceutical sales using heparin collection increased by more than 25% year on year.

CDMO and other business revenue was $154 million, up 9.58% year over year.

The internationalization of injections is accelerating, establishing a leader in the US injectables market. In 2023, the company received FDA approval for 10 varieties, including prexafil injections, bupivacaine hydrochloride injections, etc., which have a market share of more than 100 million US dollars; currently, the company has operated more than 50 products in the US market and continues to promote registered sales in more than 20 countries and regions, including South America, Central Asia, West Asia, North Africa, etc., providing sufficient impetus for the long-term growth of the company's performance.

Promote macromolecular transformation and enter the standardized market for biosimilar drugs and complex formulations. The company has formed an anticoagulant, reproductive, endocrine, and rare disease biopharmaceutical technology platform. 4 polypeptide products are being approved in the US, 1 product registration has been approved and production has been completed, and 6 products are in early development. At the same time, research and development of 4 biosimilar projects were promoted, and cooperation was reached on products such as menton/glycine/lysproline insulin, and albumin paclitaxel. We expect the insulin series to be approved in 2026, and more macromolecule projects will be implemented one after another.

Profit forecast adjustment: The heparin API industry has undergone major changes, and prices have dropped sharply, which has had a negative impact on the company's core business. It has been reflected in the 2023 results and will continue further until 2024Q1. Revenue and profit for 2024 are expected to be lower than previous forecasts. We expect that the price of heparin APIs is expected to gradually improve from a low level, and there may be a better recovery in 2025.

Profit forecasting and valuation. Net profit due to mother for 2024-2026 is estimated to be RMB 911 million, RMB 1,151 million, and RMB 1,395 million respectively, with year-on-year increases of NA, 26.4%, and 21.1%, respectively, and corresponding PE of 24X, 19X, and 16X respectively. We have long been optimistic about the company's development and maintain a “buy” rating.

Risk warning: The risk of injections being approved overseas falls short of expectations, the risk that sales of heparin raw materials do not meet expectations, the risk that domestic medical insurance fee control pressure will increase, and the risk that estimates may be erroneous with reality, etc.