Core views
On April 26, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company's routine vaccine sales continued to gain strength, and PCV13 sales increased dramatically, driving an increase in overall performance; the diploid vaccine was approved, which is expected to contribute to the increase in performance in 24 years. The company's R&D pipeline continues to advance, and the future product matrix is rich; the international business is progressing actively, and overseas markets are expected to expand further, bringing new increases in performance. The company actively pays cash dividends, repurchases and continues to increase its shareholding, reflecting confidence in future development.
occurrences
The company released its 2023 annual report, and the performance was in line with expectations
On April 26, the company released its 2023 annual report, which achieved: 1) operating income of 3.477 billion yuan, up 10.14% year on year; 2) net profit of 881 million yuan, up 749.02% year on year; 3) net profit without return to mother of 722 million yuan, up 495.11% year on year; 4) basic earnings per share of 0.77 yuan. The results were in line with previous expectations.
The company's profit distribution plan is to distribute a cash dividend of 2 yuan (tax included) to all shareholders for every 10 shares, with a total estimated cash dividend of 223 million yuan.
The company released its 2024 quarterly report, and the performance fell short of previous expectations
On April 26, the company released its report for the first quarter of 2024, achieving: 1) operating income of 452 million yuan, a year-on-year decrease of 39.65%; 2) net profit of 54 million yuan, a year-on-year decrease of 73.69%; 3) net profit after deducting non-return to mother of 0.14 million yuan, a year-on-year decrease of 92.42%; 4) basic earnings per share of 0.05 yuan. The results fell short of previous expectations.
Brief review
Sales of conventional products continue to gain strength, and international business is progressing positively
In the fourth quarter of 2023, the company's revenue was 1,013 million yuan, up 71.01% year on year; net profit to mother was 164 million yuan, up 148.91% year on year; net profit after deducting non-return to mother was 123 million yuan, up 137.83% year on year. 23Q4 results achieved significant growth, mainly due to the low 22Q4 performance base. The company's revenue side maintained steady growth in 2023, mainly due to the steady release of conventional vaccine products such as the 13-valent pneumococcal polysaccharide conjugate vaccine (PCV13), the acellular haemophilus influenzae type b combination vaccine (quadruple vaccine), and the hepatitis B vaccine; the profit side achieved significant growth, mainly due to the low profit base in 2022 due to the impact of COVID-19 vaccine-related impairment and costing. The year-on-year decline in 2024Q1's revenue side was mainly due to the year-on-year decline in product sales; the decline on the profit side was greater than on the revenue side, mainly due to: 1) the year-on-year decline in revenue; 2) the year-on-year increase in management expenses, R&D expenses, etc.
Sales of conventional vaccines continue to increase, and diploid vaccine is expected to contribute to the increase. In 2023, the company's sales revenue for routine vaccines (excluding COVID-19 vaccines) was 3,505 billion yuan, an increase of 18.98% over the previous year. Among them, PCV13 sales revenue increased 55.64% year over year, and sales revenue of 23-valent pneumococcal polysaccharide vaccine (PPSV23) increased 36.88% year over year. PCV13 sales continued to gain strength in 2023, becoming a key factor driving the company's performance growth, and its market share continued to increase; as the company continues to expand coverage of vaccination sites and strengthen sales efforts, PCV13 is expected to continue to maintain its volume pace in 2024. In September 2023, the company's freeze-dried human rabies vaccine (human diploid cells) was officially approved for marketing. It became the second approved human diploid vaccine in China, and is expected to contribute to a new increase in performance in 2024.
The R&D pipeline continues to advance, and the future product matrix is rich. The company has a rich R&D technology platform and R&D pipeline, and various research pipelines are progressing steadily. Currently, the freeze-dried human rabies vaccine (human diploid cells) and the live attenuated varicella vaccine were approved for marketing in September 2023 and April 2024, respectively, and several other product pipelines are in clinical trials. In addition, the company is also developing vaccines such as quadrivalent enterovirus inactivated vaccine (Vero cell), shingles vaccine, and respiratory syncytial virus vaccine (RSV). In the future, as the products being developed by the company are approved one after another, the product matrix will continue to be enriched, which will provide an important guarantee for the company's continuous development and further enhance the company's competitive strength.
Overseas business is progressing actively, and the internationalization strategy continues to advance. The company continues to promote overseas business expansion. At present, it has reached cooperation agreements with more than 10 overseas countries on registration, promotion, commercial sales, and technology transfer of products such as PCV13, PPSV23, live attenuated chickenpox vaccine, and quadruple vaccine in overseas markets. In October 2023, the company PCV13 obtained Indonesia's “Marketing License”, which indicates that the vaccine has the basic conditions for sale in the Indonesian market, and has now signed a PCV13 “Sales Contract” with the Indonesian partner. In April 2024, Minhai Biotech, a wholly-owned subsidiary of the company, signed a “Memorandum of Strategic Cooperation” with the Daxing District Government and AstraZeneca to jointly explore all-round cooperation in the vaccine field and help China cooperate and develop innovative vaccine products at home and abroad.
The R&D expense rate has declined, and asset impairment losses have been drastically reduced
In 2023, the company's gross profit margin remained stable at 84.54% (+0.37pp). The company's annual sales expenses were 1,231 million yuan (+13.36%), sales expense ratio 35.41% (+1.01pct); management expenses of 276 million yuan (+19.70%), management expense ratio of 7.92% (+0.63pct); R&D expenses of 501 million yuan (-37.55%), R&D expenses rate of 14.40% (-11.00pct); financial expenses -0.2 billion yuan (-92.62%), financial expenses ratio -0.04% (+0.62pp).
The R&D cost rate declined, mainly due to the reduction in clinical phase III costs of the COVID-19 vaccine, while the remaining cost rates remained stable. The company's net operating cash flow for the year was $1,033 million (+89.32%), mainly due to increased sales payments and royalties paid during the same period in '22. The total amount of asset impairment calculated by the company in 2023 was 132 million yuan, of which the inventory calculation prepared 116 million yuan for the reduction in inventory prices, mainly for the COVID-19 vaccine.
In the first quarter of 2024, the company's gross profit margin was 84.07% (-1.84pp), mainly due to declining sales revenue and relatively fixed costs. The 24Q1 company's sales expenses were 160 million yuan (-38.36%), sales expense ratio 35.37% (+0.74pct); management expenses of 0.74 million yuan (+42.34%), management expense ratio 16.28% (+9.38pct); R&D expenses of 108 million yuan (+27.39%), R&D expenses rate of 23.83% (+12.54pct); financial expenses of 0.05 billion yuan (-302.19%), financial expenses ratio of 1.02% (+1.33pp). The increase in management expenses was mainly due to the implementation of restricted stock and stock option incentives; the increase in R&D expenses was mainly due to an increase in current confirmation costs. The company's 24Q1 net operating cash flow was -76 million yuan (-159.24%), mainly due to reduced repayments and increased expenses for purchasing raw and auxiliary materials and payment of service fees.
Broaden the medium- to long-term incentive path and actively increase cash dividends and share holdings. In order to further establish and improve the company's long-term incentive mechanism, help the company achieve its development strategy, attract and retain company managers and core backbone, and fully mobilize their enthusiasm and creativity, the company issued the “2023 Stock Options and Restricted Stock Incentive Plan (Draft)” on December 28, and issued the “Notice on Granting Stock Options and Restricted Shares for the First Time to Incentive Targets”, which was awarded to 462 incentive recipients for the first time, effectively benefiting shareholders , the company's interests and the interests of employees are combined to encourage all parties to work together to promote the company's continuous long-term development.
In order to implement the company's “Double Improvement of Quality and Return” action plan, actively reward shareholders, and share the results of the company's business development with shareholders, the company has formulated a stable profit distribution policy. The total amount of dividends paid and proposed cash dividends in 2023 is $525 million, accounting for 61% of net profit due to mother in 2023.
The company increased its holdings by a total of 137.57 shares through centralized bidding transactions from October 2022 to January 2023, with a total increase of 504.967 million yuan, reflecting the company's confidence in future development and recognition of the company's long-term investment value. In the future, the company will continue to coordinate the dynamic balance between company development and shareholder returns, and continue to effectively allow investors to share the results of the company's growth and development.
2024 outlook: Regular products are expected to continue to be released. Continued promotion in research and pipeline and international business The company is a leading enterprise in the domestic vaccine industry. It has a rich product layout. Products such as PCV13, quadruple vaccine, and hepatitis B vaccine are expected to rely on their price and quality advantages, and are expected to continue to be released in 2024, driving the company's performance growth. The diploid vaccine has been approved, and 2024 is expected to bring additional performance to the company. The company has a rich research pipeline, which lays a good foundation for long-term development; the international business is progressing actively, which is expected to further expand the international market and bring increased performance. The company actively pays cash dividends, repurchases the company's shares, and continues to increase its holdings, showing confidence in future development. We are optimistic that the company will continue to enhance investor returns and achieve long-term healthy development while maintaining high-quality development in the future.
Profit Forecasts and Investment Ratings
Without considering the COVID-19 vaccine profit forecast, we expect the company's revenue for 2024-2026 to be 4.328 billion yuan, 5.202 billion yuan, and 5.981 billion yuan respectively, up 24.5%, 20.2%, and 15.0% year-on-year respectively. Net profit attributable to mother was RMB 988 million, RMB 1,314 million and RMB 1,648 million respectively, up 14.7%, 33.0% and 25.4% year-on-year respectively. Equivalent EPS was 0.88 yuan/share, 1.18 yuan/share and 1.48 yuan/share, respectively. Corresponding PE was 22.8X, 17.2X and 13.7X, respectively, maintaining the purchase rating.
Risk analysis
1. The speed of release and approval falls short of expectations: The company continues to promote admission after the launch of PCV13. If subsequent admission and release progress falls short of expectations, it will affect the company's expected performance and valuation. The company's Diploid Mad Plant is expected to be officially launched and sold in 2024. If promotion access and sales progress in various regions fall short of expectations, it will affect the company's future expected performance.
2. Risk of product price fluctuations: Prices of listed products may fluctuate. If the price drops significantly, it will affect the company's revenue and profit expectations, which in turn affects valuation.
3. Product safety risk: Vaccines have certain safety risks due to their special biological characteristics. If a vaccine safety incident occurs, it will not only adversely affect the operation and production of the enterprise itself, but may also cause fluctuations in the vaccine industry.