Core views

On April 25, the company released its 2024 quarterly report. The year-on-year decline in performance was mainly due to the high sales base for influenza vaccines, and the blood products business maintained steady growth. In terms of blood products, it is expected that as the amount of pulp collected continues to rise and demand for diagnosis and treatment increases, blood product revenue is expected to continue to grow steadily throughout the year; in terms of vaccines, it is expected that as influenza vaccines begin to be issued in batches, the company's influenza vaccine will gradually usher in volume, driving the growth in the vaccine sector's performance; and Vero cell vaccine and tetanus vaccines will bring additional performance.

occurrences

The company released its 2024 quarterly report, and the results were in line with expectations

On April 25, the company released its report for the first quarter of 2024, achieving: 1) operating income of 787 million yuan, a year-on-year decrease of 10.60%; 2) net profit to mother of 262 million yuan, a year-on-year decrease of 25.56%; 3) net profit after deducting non-return to mother of 221 million yuan, a year-on-year decrease of 19.66%; 4) basic earnings per share of 0.14 yuan. The performance was in line with expectations.

Brief review

The high influenza vaccine sales base affected the growth rate. The blood products business remained steady. The 24Q1 company's performance declined year-on-year, mainly due to the severe influenza epidemic in many places in 23Q1, which contributed to a sharp increase in influenza vaccine sales, leading to a high performance base; the year-on-year decline in profit side was greater than on the revenue side, mainly due to: 1) the gross margin of the vaccine sector was high, and the year-on-year decline in revenue in 24Q1 led to a decrease in gross margin; 2) asset disposal income declined sharply year on year. Excluding revenue from the subsidiary Hualan Vaccine, 24Q1's other revenue (mainly blood products business) was 753 million yuan, an increase of 2.3% over the previous year, maintaining steady growth.

Blood products business: Albumin batch issuance maintained steady growth, and increased plasma collection helped improve performance. According to data from the China Inspection Institute, a total of 9 varieties of 2024Q1 were approved, including 58 batches of human albumin issued (+3.6%), 26 batches (-42.2%), PCC issued 12 batches (-70.0%), coagulation factor VIII issued 23 batches (-36.1%), fibrinogen issued 6 batches (+50.0%), fibronectin issued 9 batches (-10.0%), 4 batches (-80.0%), and B issued 1 batch (-80.0%) without issuing 1 batch (-80.0%) 3.3%), people are exempt from issuing 1 batch (-80.0%) The number of batches issued for albumin has maintained a steady increase. The number of batches issued for products such as static acrylic and PCC declined year-on-year, mainly due to the high base in the same period last year. The construction of the company's pulp station continues to advance. The pulp stations in Xiangcheng County and Qi County are expected to be completed and approved by 24H1. In 2023, the amount of pulp collected was 1342.32 tons, an increase of 19.59% over the previous year, bringing continuous impetus to the growth of the company's blood products business performance in '24.

Vaccine business: The high base has put pressure on performance in the short term, and we are optimistic that it will continue to grow throughout the year. According to the quarterly report of the holding subsidiary Hualan Vaccine, Hualan Vaccine achieved revenue of 34 million yuan in 2024Q1, a year-on-year decrease of 76.36%; net profit to mother was 0.39 million yuan, down 58.93% year on year; net profit after deducting non-return to mother was 0.14 million yuan, down 79.19% year on year. The year-on-year decline in performance was mainly due to a sharp year-on-year decline in influenza vaccine sales. It is expected that with the beginning of batch issuance of influenza vaccines, the company's influenza vaccine will gradually be released, boosting the revenue of the vaccine business. The company has successively obtained production approvals for freeze-dried human rabies vaccine (Vero cells) and adsorbed tetanus vaccine, which is expected to bring additional volume to the vaccine business in 2024.

The decline in 24Q1 influenza vaccine sales affected gross profit margin. Asset disposal revenue decreased year-on-year in 2024Q1, and the company achieved gross profit of 438 million yuan (-21.07%), with a gross profit margin of 55.68% (-7.38pct). The decline in gross margin was mainly due to a sharp drop in influenza vaccine revenue, which lowered the overall gross margin level. In the first quarter, the company's sales expenses were 45 million yuan (-29.27%), sales expense ratio 5.68% (-1.50pct); management expenses of 0.73 billion yuan (+11.22%), management fee ratio 9.24% (+1.81 pct); R&D expenses of 0.73 billion yuan (-6.28%), R&D expenses rate of 9.24% (+0.43pct); financial expenses -0.03 billion yuan (-334.40%), financial expenses ratio -0.37% (-0.51 pct). The year-on-year decline in sales expenses was mainly due to the year-on-year decline in sales of vaccine products. The company's net operating cash flow for the first quarter was 50 million yuan (-86.41%), mainly due to increased cash payments for the purchase of goods. The 24Q1 asset disposal revenue of the company was 74,900 yuan (-99.83%), mainly due to a decrease in physical assets disposed of in the current period.

Profit Forecasts and Investment Ratings

In the first quarter of 2024, the company's blood products business maintained steady growth. Sales of influenza vaccines declined year-on-year due to the impact of the 23Q1 high base.

It is expected that in 2024, in the blood products business, the increase in the amount of pulp collected at the plasma station will bring continuous impetus to the increase in the company's pulp collection volume. Combined, demand for diagnosis and treatment will continue to grow, and the sales revenue of blood products is expected to maintain a steady increase. In terms of the vaccine business, it is expected that with the start of batch issuance of influenza vaccines, the company's influenza vaccine will gradually be released, driving an increase in vaccine business revenue; Vero cell vaccine and tetanus vaccine will bring additional performance.

We expect the company to achieve operating income of 6.281 billion yuan, 7.187 billion yuan and 8.050 billion yuan respectively, and net profit to mother of 1,668 billion yuan, 1.916 billion yuan, and 2.161 billion yuan respectively, up 12.6%, 14.9% and 12.8% year-on-year respectively. EPS per share is 0.91, 1.05, and 1.18 yuan, respectively. The current stock price corresponds to the 2024-2026 valuation of 21.3X, 18.6X and 16.5X, respectively, giving a purchase rating.

Risk analysis

1. Safety issues of blood products and the risk of monitoring single plasma collection stations. Due to the biological properties of the main raw materials of blood products, based on the current level of science and technology, theoretically there is still a possibility that some unknown pathogens cannot be identified and removed, and the resulting safety issues may adversely affect the company's operations. Continued standardized operation of single plasma collection stations is an important factor in the overall operation of blood products companies. Changes in the regulatory policies of single plasma collection companies may have a certain impact on the company.

2. The growth rate of pulp station construction and pulping volume falls short of expectations: The supply-side growth of the company's products mainly depends on the increase in the number of pulping stations and the increase in single-station pulping volume. If future pulping station construction and slurry volume growth rate falls short of expectations, it will affect the company's future performance and profit level expectations.

3. The progress of development and launch of new products fell short of expectations.