Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 1,259 million yuan (-4.32%), net profit to mother of -190 million yuan, and net profit of non-return to mother of -210 million yuan. In the first quarter of 2024, the company achieved operating income of 361 million yuan (+11.79%), net profit attributable to mother of 12.4 million yuan, and net profit of non-return to mother of 1.07 million yuan.
Multiple negative factors affected the 2023 results, and 2024 is expected to reach an inflection point. The company's revenue declined in 2023, with domestic sales revenue of 1.07 billion yuan (-6.01%), mainly due to the impact of regional procurement policies for some products and a decrease in unit sales prices, but product sales in the domestic market still increased by 12%, reflecting strong demand for products. The company's revenue achieved double-digit growth in the first quarter of 2024, which we expect is mainly due to the company's core products exchanging price for volume after collection.
The loss in 2023 was mainly due to an increase in R&D expenses and financial expenses. In 2023, the company's R&D expenses were 345 million yuan, accounting for 27.39% of revenue. Of these, development expenses for SHEN26 capsules were transferred to cost-processing and R&D expenses increased by 129 million yuan. We believe that since SHEN26 R&D expenses have been fully funded, the company's profit will improve significantly in 2024.
In 2023, the company adopted a more accurate marketing strategy. The sales expense ratio decreased by 8.16 pct year on year. The company's sales expenses ratio in the first quarter of 2024 was 49.20%, which continued to decline compared with 2023. We believe 2024 profits are expected to reach an inflection point as the company's various expense ratios are optimized.
The product lineup continues to be rich, and international breakthroughs are imminent. The company's export revenue in 2023 was 138 million yuan (-13.99%), and it is estimated that it will still be mainly contributed by stocks such as erythroprotin. In recent years, the company's product lineup has continued to be rich, and 12 products have been introduced one after another to provide continuous product support for overseas commercialization strategies. Currently, 12 products introduced have signed contracts with customers in more than 40 countries and have successively submitted registration applications for the introduced products. Various products such as infliximab, bevacizumab, and albumin paclitaxel have successively completed on-site audits in Egypt, Brazil, Indonesia, the European Union, etc., and it is expected that overseas sales of these products will be achieved in 2024. The key variety albumin paclitaxel successfully completed on-site inspection before EU approval in February 2024, and has completed partner contracts in 35 European and South American countries; in addition, the company recently announced that the albumin paclitaxel production line has passed EU GMP certification. Currently, only original BMS and generic drug company TEVA are sold in the European market, and terminal demand is strong. We expect significant performance growth from the second half of 2024.
Profit forecasting and valuation. We expect the company's revenue from 2024 to 2026 to be 1,463 million yuan, 1,848 million yuan, and 2,220 million yuan, respectively, with year-on-year growth rates of 16.2%, 26.3% and 20.1% respectively; net profit to mother will be 221 million yuan, 120 million yuan, and 213 million yuan, respectively. Based on the closing price on May 8, the corresponding PE will be 177.8 times, 31,9 times, and 17.9 times, respectively, maintaining the “increase” rating.
Risk warning: The procurement price reduction for core products exceeded expectations; the release and approval progress of overseas sales products fell short of expectations.