1Q24 results are in line with our expectations

The company announced 1Q24 results: revenue of 114 million yuan, up 13.65% year on year; net loss to mother of 170 million yuan. The performance was in line with our expectations.

Development trends

MCV4 is the main contributor to performance, and cost control is beginning to bear fruit. According to the company announcement, 1Q24 achieved revenue of 114 million yuan, an increase of 13.65% over the previous year. We expect the main contribution from MCV4. Based on this, we estimate that it will correspond to about 250,000 doses of MCV4, an increase of about 37% over the previous year. MCV4 is the company's key promotion product for the next 2 years. Considering that the market monopoly period for this product is still 2 years, we are optimistic about the future sales prospects of this product. 1Q24's sales expenses, management expenses, and R&D expenses were 46.59 million yuan, 37.07 million yuan, and 96.75 million yuan respectively, down 15.3%, 38.8%, and 35.4% year-on-year respectively. The corresponding expense rates were 40.8%, 32.4%, and 84.7%, respectively. The main companies strengthened cost control and reduced investment in COVID-19 research and development. We expect the company to maintain its cost control strategy throughout the year.

Shangyao Cansino is no longer included in the consolidated statement. According to the company's announcement, starting from February 2024, the subsidiary Shangyao Cansino will no longer be included in the scope of the consolidated statement, and the company's long-term equity investment in Shangyao Cansino will change from cost method to equity method accounting, resulting in an investment loss of 70.51 million yuan. We expect the incident to have less impact on the company's reporting side in the future.

PBPV announced positive preliminary phase I clinical results. According to the company's announcement, PBPV uses an antigen based on pneumococcal surface protein A, and has a higher serum coverage rate (at least 98%) compared to PPV23 and PCV13 currently on the market. Phase Ia/Ib clinical results showed that PBPV is safe, and a single dose of vaccination can induce obvious conjugate antibodies. The company will further evaluate the phase II/III clinical plan in the future.

In addition, in terms of the research pipeline, the company's PCV13 marketing application has been accepted; the infant component dTCP has completed phase III trial enrollment, and we expect it to start pre-NDA in 2025; the adsorbed tetanus vaccine has initiated phase III clinical trials; the recombinant shingles vaccine (adenovirus vector) has initiated phase I clinical trials in Canada; and the recombinant polio vaccine has initiated phase I clinical trials in Australia. We are optimistic about the company's existing pipeline reserves.

Profit forecasting and valuation

Considering that the market prospects for the company's core products are better than expected, we raised our profit forecast for 2024 from a loss of 567 million yuan to a loss of 395 million yuan, and the profit forecast for 2025 from a loss of 372 million yuan to a loss of 77 million yuan. As we raised our profit forecast, based on the DCF model, we maintained that A/H shares outperformed the industry rating. Considering the recent upward shift in the valuation center of the H share vaccine sector and the gradual correction of the A/H share premium, we raised our target price for A shares by 4.0% to 72.11 yuan (41.2% space), and raised the target price of H shares by 31.7% to HK$29.35 (34.9% space).

risks

Commercialization falls short of expectations; R&D progress falls short of expectations.