Matters:
On April 25, the company released its 23 annual report and 24 quarterly report. Revenue of $2,527 billion (-5.23%), net profit attributable to mother of $27 million (+123.02%), and net profit after deducting non-return to mother of $63 million (+175.92%), all turned a loss into a profit. 24Q1 The company's revenue was 689 million yuan (-11.29%), net profit attributable to mother was 41 million yuan (-59.58%), and net profit after deducting non-return to mother was 53 million yuan (-42.72%).
Commentary:
The Sartan business resumed combined with the release of new varieties, and the company's API business is expected to enter a mid-term growth cycle. In 23, the company's revenue from the API business declined due to the decline in competitive prices in the market and the removal of inventory by customers in the irregular market for losartan potassium; at the same time, due to the removal of inventory from the irregular market, the increase in the share of customers in the regulated market drove the gross profit margin. Meanwhile, by the end of '23, the company had implemented 7 APIs to provide commercialized services for the original research. Specifically, in '23, the company's generic drug API business achieved revenue of 2,005 billion yuan, a year-on-year decline of 14.69%, and a gross profit margin of 34.41%, an increase of 12.01 pct over the previous year.
1. The Sartan business has basically stabilized and entered a recovery cycle. Looking at the first quarter, the company's sales volume of sartan grew faster month-on-month, and there were sufficient orders in hand. We anticipate that the company's stock API business, which is mainly based on sartan, will soon enter a recovery cycle and is expected to show a positive trend from quarter to quarter.
2. Non-sartan APIs are growing rapidly, and reserve projects are abundant. Many varieties of the company's reserves are about to begin to be released as patents expire, and the momentum brought by incremental varieties is expected to gradually strengthen and form a synergy with Sartan to drive the company's overall performance back to a medium- to long-term growth trajectory. In '23, the sales revenue of the company's non-satan-like APIs was 206 million yuan, an increase of 45.53% over the previous year. At the same time, the company also has a large number of API projects under development. By the end of 23, the company had 62 active API and intermediate research projects.
CDMO's business performance has exceeded expectations, and the project pipeline is strong. In 2023, the company's CDMO business achieved revenue of 406 million yuan, an increase of 54.20% over the previous year. Looking forward to the future, the company is expected to continue to grow under the joint impetus of the following three aspects: 1) the scale of the original commercialized varieties is basically stable; 2) with the promotion of drugs, cooperation projects with Hengrui Pharmaceutical (hypoglycemic products proline hengaglipidine and anti-tumor drugs) are also expected to bring in an increase; 3) the expansion of R&D and business teams is expected to bring continuous incremental customers and orders. By the end of 2023, the company will still have 20 CDMO projects under development.
The formulation is showing initial results and is expected to become an important profit pillar in the medium term. In 2023, the company's formulation revenue was 105 million yuan, an increase of 209.2% over the previous year, achieving explosive growth on a small basis. Judging from the pace of product approval, in '23, the company obtained approval for drug production for 13 varieties, and marketing license applications for 16 varieties were accepted by the State Drug Administration. Based on the continuous growth and strengthening of the company's formulation marketing team, it is expected that the company's formulation will become the company's growth engine faster after approval in the future.
Investment advice: Based on the company's latest business situation, since the company also requires continuous investment in R&D and sales in the domestic formulation business, we adjusted the 2024-2026 net profit forecast to be 2.99, 3.90, and 495 million yuan (previous 24-25 forecast values were 3.17 million and 477 million, respectively), achieving year-on-year growth of 991.4%, 30.5%, and 27.1%. The current stock price corresponding to 2024-2026 PE is 23, 18, and 14 times, respectively. Referring to comparable company valuations, the company was given 30 times PE in 2024, corresponding to a target price of 25.7 yuan. Maintain a “Recommended” rating.
Risk warning: 1. CDMO business orders fall short of expectations; 2. Approval of new formulations falls short of expectations; 3. Competition in the API industry intensifies.