Core views

On April 22, the company released the 2023 Annual Report and the 2024 First Quarter Report. The 9-valent HPV vaccine led to rapid growth in the company's annual performance and is expected to remain stable in the future. The company signed an exclusive agency agreement with GSK, and the recombinant shingles vaccine will contribute to performance growth and new volume. In terms of independent products, WeChat and IKA products continue to promote entry and release, and marketing team building and R&D pipelines continue to advance, empowering the company's long-term continuous growth. The company plans to acquire Chenan Biotech, and the business layout is expected to expand further.

occurrences

The company released its 2023 annual report, and the performance was in line with expectations

On April 22, the company released its 2023 annual report, achieving: 1) operating income of 52,918 billion yuan, up 38.30% year on year; 2) net profit to mother of 8.070 billion yuan, up 7.04% year on year; 3) net profit without return to mother of 7.915 billion yuan, up 5.40% year on year; 4) basic earnings per share of 3.36 yuan. The results were in line with previous expectations.

The company's profit distribution plan reviewed and approved by the board of directors is to distribute a cash dividend of 8.0 yuan (tax included) to all shareholders for every 10 shares based on 2,394 million shares.

The company released its 2024 quarterly report, and the performance fell short of previous expectations

On April 22, the company released its report for the first quarter of 2024, achieving: 1) operating income of 11.396 billion yuan, a year-on-year increase of 2.00%; 2) net profit to mother of 1,458 billion yuan, a year-on-year decrease of 28.26%; 3) net profit after deducting non-return to mother of 1.455 billion yuan, a year-on-year decrease of 28.36%; 4) basic earnings per share of 0.61 yuan. The results fell short of previous expectations.

Brief review

The increase in sales of agent products led to performance growth. The increase in the share of 9-price HPV affected gross margin. In the fourth quarter of 2023, the company achieved operating income of 13.646 billion yuan, up 30.70% year on year; net profit to mother was 1,540 billion yuan, down 20.31% year on year; net profit after deducting non-return to mother was 1,535 billion yuan, down 20.03% year on year. 23Q4's revenue side continued to grow rapidly, mainly due to the continued release of surrogate products represented by the 9-valent HPV vaccine; the profit side declined year-on-year, mainly due to: 1) the share of the 9-valent HPV vaccine increased compared to the same period in '22, and the gross margin decreased due to changes in sales structure; 2) loss of 312 million yuan in asset impairment at the end of the period. The revenue side growth rate slowed in 24Q1, mainly due to the high performance base in 23Q1; the year-on-year decline on the profit side, mainly due to: 1) a decrease in gross margin due to an increase in the share of the 9-valent HPV vaccine; 2) an increase in bad debt preparation, which led to a year-on-year increase in credit impairment losses, affecting the profit side; 3) the year-on-year increase in sales expenses and management expenses.

The HPV vaccine continues to be released, driving rapid growth in agent product revenue. In 2023, the company's agent products achieved revenue of 51,885 billion yuan, a year-on-year increase of 48.35%; gross profit margin was 25.68%, a year-on-year decrease of 10.40 pcts. Revenue from proxy products increased dramatically, mainly due to rapid sales growth after the 9-valent HPV vaccine was officially implemented in 2023. The year-on-year decline in gross margin was mainly due to the lower gross margin of the 9-valent HPV vaccine and an increase in revenue share. According to the batch issuance situation, in 2023, the company issued 3.5508 million doses of the 9-valent HPV vaccine in batches, an increase of 136.16% over the previous year to achieve rapid release; the 4-valent HPV vaccine batch issued 10.3434 million doses, a decrease of 26.27% over the previous year. In terms of other proxy products, 7.1741 million doses of the five-valent rotational vaccine were issued, a year-on-year decrease of 18.72%; the 23-valent pneumonia vaccine was 1,628,500, an increase of 59.37%; and the inactivated hepatitis A vaccine was 311,400, a decrease of 49.21% year on year.

An exclusive agency agreement was signed with GSK, and future performance growth gained new impetus. In October 2023, the company announced the signing of an agreement with GSK to cooperate on the supply, distribution and joint promotion of GSK's recombinant shingles vaccine. GSK will appoint the company as the exclusive importer and distributor within the cooperative region to be responsible for the marketing and promotion of the shingles vaccine in China; the agreement period exceeds 3 years, and the total amount exceeds 20 billion dollars. The signing of this agency agreement means that the company's commercialization capabilities have been recognized by international giants again, which will provide the company with a second growth curve and further enhance the company's profitability. Meanwhile, the company and GSK are further discussing strategic cooperation for the RSV vaccine, which is expected to promote the development and commercialization of the GSK RSV vaccine in China. The 24Q1 recombinant shingles vaccine was issued in 13 batches, and it is expected that rapid release will be achieved in 24, bringing new impetus to the company's performance growth.

Independent products are affected by the COVID-19 vaccine, and EC and microcard continue to promote entry and release. In terms of independent products, revenue of 1,028 billion yuan was achieved in 2023, down 68.70% year on year; gross profit margin was 89.38%, up 3.35 pct year on year. The revenue side experienced a sharp decline, mainly due to a sharp decline in COVID-19 vaccine sales in 2023. Judging from the batch issuance situation, in 2023, the company issued 8.017 million doses of the ACYW135 meningococcal polysaccharide vaccine, up 90.04% year on year; AC meningococcal conjugate vaccine was 1,314,400, down 80.83% year on year; Hib vaccine was 2.7784 million, up 75.49% year on year; AC meningococcal polysaccharide vaccine was 4492 million, down 58.16% year on year. Since the approval of IKA (EC) and MicroCard, they have continued to promote local access in 2023, and it is expected that they will accelerate deployment in the future. EC was successfully included in the national health insurance catalogue, helping to further expand the beneficiaries and make full use of the synergy of the company's tuberculosis product matrix.

Continue to strengthen the independent marketing team and further enrich the R&D pipeline. The company has a developed marketing network and an industry-leading marketing team. By the end of '23, the company's sales staff had reached 3,990 people, an increase of 18.79% over the previous year, providing a more adequate manpower guarantee for the company's marketing services. The company continues to strengthen its independent R&D capabilities. In 2023, the R&D investment amount was 1,345 billion yuan, an increase of 20.82% over the previous year. In terms of the R&D pipeline, in September 2023, the 23-valent pneumopolysaccharide vaccine independently developed by the company was approved for marketing; the quadrivalent influenza virus lysis vaccine is in the marketing application stage; the freeze-dried human rabies vaccine (MRC-5 cells) and the trivalent influenza virus lysis vaccine have completed phase III clinical trials, and it is expected that marketing applications will be submitted in the near future. A number of other products are in phase III clinical trials. If they progress smoothly in the future, it will help the company's performance continue to grow over a long period of time.

It is proposed to acquire Chenan Biotech to further expand its business layout. <股权收购意向性协议>In November 2023, the company issued the “Notice Concerning Proposed Signed and Related Transactions” to sign an intentional agreement to acquire shares in Chenan Biotech. Chenan Biotech focuses on metabolic diseases such as diabetes and obesity, and has formed a pipeline layout for GLP-1 similar drugs and insulin analogs. Among them, recombinant liraglutide injections and Tokugu insulin injections have completed clinical phase III; recombinant simeglutide injections are in phase III clinical phase. After the transaction is completed, Chenan Biotech will become a wholly-owned subsidiary of the company. This marks the expansion of the company's business layout to cover metabolic diseases such as diabetes and obesity, and the expansion into the field of therapeutic biopharmaceuticals with Chenan Biotech as the main body. It is in line with the company's long-term development strategy and will add important support to the company's continued development.

Revenue restructuring affected gross profit margins for 23 and 24Q1. Various expense ratios remained stable. In 2023, the company achieved gross profit of 14.244 billion yuan (+10.68%) and gross profit margin of 26.92% (-6.71 pct). The decline in gross margin was mainly due to an increase in the share of revenue from the 9-valent HPV vaccine and changes in the revenue structure. In terms of expenses, the company's sales expenses in 2023 were 2.773 billion yuan (+24.04%), sales expense ratio 5.24% (-0.60pct); management expenses of 393 million yuan (+5.05%), management fee ratio of 0.74% (-0.24pct); R&D expenses of 968 million yuan (+13.38%), R&D expenses rate of 1.83% (-0.40pct); financial expenses of 47 million yuan (+242.20%), financial expenses rate 0.09% (+0.05pct).

The various cost rates have remained stable. The company's operating activities generated a net cash flow of $8.996 billion (+352.30%) in 2023, mainly due to increased sales repayments in 2023; accounts receivable of $27.059 billion (+31.26%), mainly due to increased sales revenue.

With 2024Q1, the company achieved gross profit of 2,969 billion yuan (-12.32%) and gross profit margin of 26.05% (-4.25pct). The decline in gross margin was mainly due to an increase in the share of revenue from the 9-valent HPV vaccine. 24Q1 Company sales expenses of 495 million yuan (+10.83%), sales expense ratio 4.34% (+0.35pct); management expenses of 111 million yuan (+38.95%), management fee ratio of 0.97% (+0.26pct); R&D expenses of 234 million yuan (+9.40%), R&D expenses rate 2.05% (+0.14pct); financial expenses of 0.06 million yuan (-69.59%), financial expenses ratio 0.05% (-0.12pct). The year-on-year increase in sales expenses was mainly due to the company's increased investment in product marketing; the increase in management expenses was mainly due to the company's continuous expansion of the marketing team and the increase in personnel related expenses.

24Q1 The company's operating activities generated a net cash flow of 4.274 billion yuan (-310.92%), mainly due to an increase in payment payments for purchased goods. Credit impairment losses - $341 million (-126.58%), mainly due to increased preparation for bad debts.

2024 outlook: The shingles vaccine provides new growth impetus, and actively promotes R&D pipeline and business layout expansion. As a leading enterprise in the vaccine industry, the company achieved rapid growth in 2023, mainly due to the rapid release of the 9-valent HPV vaccine. In 2024, the company will continue to promote HPV vaccine release and increase domestic vaccination rates. At the same time, in the first year of sales of the GSK recombinant shingles vaccine as an agent, the company will actively complete the promotion goals for the whole year, providing new impetus for performance growth. In terms of independent products, the volume of microcard and IKA products is expected to accelerate as promotion and admission gradually advance; the R&D pipeline continues to advance, which will help the company's performance continue to grow over the long term. In addition, the company will actively promote the acquisition of Chenan Biotech, integrate high-quality pharmaceutical companies incubated by the Group, so that the product line and business can gradually expand to cover the field of therapeutic pharmaceuticals, and help the company develop in the long term.

Profit Forecasts and Investment Ratings

Without considering the COVID-19 vaccine profit forecast, we expect the company's revenue from 2024 to 2026 to be 59.986 billion yuan, 64.756 billion yuan and 68.413 billion yuan, respectively, and net profit to mother will be 9.036 billion yuan, 11.066 billion yuan and 13.259 billion yuan respectively. The apparent year-on-year increase of 12.0%, 22.5%, and 19.8% year-on-year respectively. Equivalent EPS is 3.77 yuan/share, 4.62 yuan/share, and 5.54 yuan/share. The corresponding PE is 9.7X, 7.9X and 6.6X, respectively. Maintain a buy rating.