Key points of investment:
The gradual release of production capacity, the global leader in caffeine and acarbose, contributed to a steady cash flow increase of the company's revenue of 2,502 billion yuan and net profit of 755 million yuan in 2023. Functional raw materials accounted for more than 85% of revenue, contributing to the company's stable cash flow. Low caffeine prices in 24Q1 put pressure on the revenue side. Since January '24, caffeine export prices have fallen back to the 2017-2020 average. We believe there is limited room for caffeine export prices to decline, and we are optimistic that the revenue side will resume positive growth as sales increase in 25-26. Shengxue's performance promises Acarbose a profit of 102 million in 24 years. Currently, it has planned production capacity of 280 tons, with an output of 200 tons (+25%) in 23. Production capacity is expected to be fully released in 25, and sales of acarbose are expected to maintain a relatively rapid growth rate in 24-25.
ADC+ scarce mRNA vaccine platform. It is expected that in 2024, 2 monoclonal antibodies will open a cash capital increase to acquire 51% of Jushi Biotech's shares, which is also a subsidiary of Shijiyao. In January 2024, the commercial change registration will be completed, and Jushi Biotech will become the company's holding subsidiary. Dushi Biotech's omazumab treatment for severe asthma and PD-1 monoclonal antibody treatment for cervical cancer has been declared for marketing, and is expected to be approved for marketing in 2024, starting to increase the commercialization of innovative drugs; the ADC platform uses enzymatic point coupling technology to stabilize and uniform DAR values. Currently, HER2 ADC is in the II/III registered clinical stage. We are optimistic about nectin 4 ADC in the frontline treatment of urothelial cancer, and the potential of CLDN18.2 ADC in gastric cancer and the overseas BD potential of EGFR ADC; The COVID-19 vaccine on the company's mRNA platform has been approved for marketing. It is the only proven mRNA vaccine platform in China. It is optimistic about the advantages of flexible mRNA vaccine development and good safety.
The proposed acquisition of ShijiaoBaike as the Group's strategic position as an innovative A-share platform further highlights Baike Biotech's 2023 revenue of 2.66 billion yuan and profit of 860 million yuan, mainly contributed by upgrading Yaojin's GLP-1 target layout; we are optimistic about the GLP-1 target layout of Shiyao 100 grams. Obesity/overweight with long-term recombinant GLP-1 Fc fusion protein TG103 injection is in phase III clinical use. It is expected that it will be approved for listing one after another from 2026, while GLP-1 double target and triple target Products etc. are in the pre-clinical stage. After the acquisition of Shiyao Baike, the company's strategic position as CSPC Group's A-share innovative drug platform was further highlighted. CSPC Group also includes 5 innovative drug platforms, including dual antibodies, siRNA, and long-acting injections. In the long run, the company not only has stable cash flow, but also has a heavyweight R&D pipeline and a strong commercialization team. It is a high-quality innovative pharmaceutical company with great potential.
Profit forecasting and investment advice
We expect the company's revenue for 2024-2026 to be 2,479/28.23/3,069 billion yuan respectively, up -1%/14%/9% year on year, achieving net profit to mother of 6.97/8.22/ 884 million yuan, up -8%/18%/6% year on year, and PE 68.6/58.1/54.6 times, respectively. First coverage, giving a “buy” rating.
Risk warning
Innovative asset injection falls short of expectations; risk of fluctuations in raw material prices; risk of exchange rate changes; risk related to drug development; risk of drug commercialization falling short of expectations.