In 2023, it turned a loss into a profit, and the dividend rate reached 61%.
We forecast the company's 2024-26 revenue/net profit CAGR of 26%/39%, respectively.
Maintain the purchase and reduce the DCF target price (WACC = 8.7%) to $33.69.
Turning a loss into a profit in 2023: According to Kangtai Biotech's annual report, the company achieved revenue/net profit of 3.47 billion yuan/861 million yuan in 2023, +10%/+749% year-on-year, and the performance was lower than our previous expectations. The net profit correction was mainly due to a sharp year-on-year decrease in asset impairment losses related to the COVID-19 vaccine during the year. The sales expense ratio increased by 1.0 ppts to 35.4% year-on-year in 2023, mainly due to increased sales of non-immunized vaccines and increased promotion expenses. The R&D cost rate decreased by 11.0 ppts to 14.4% year-on-year, mainly due to the gradual entry of new products into the marketing stage, and testing and processing costs were drastically reduced. In 2023, the company's dividends and proposed cash dividends reached 530 million yuan, with a dividend rate of 61%.
The rich product layout provides impetus for the company's continued growth: 1Q24 achieved revenue/net profit of 450 million yuan/ 50 million yuan, -40%/-74% year-on-year. The decline in performance was mainly due to 1Q23's high base and a decrease in the number of newborns, which led to a reduction in overall market capacity. According to the company's announcement, the live attenuated chickenpox vaccine was approved for marketing in April 2024. Admissions will be promoted this year, and we expect to achieve release in 25 years. At the same time, the company focuses on multi-pronged, adult vaccines and innovative vaccines. The market space is broad, providing impetus for the company's continued growth.
HDCV has been approved and certified; overseas expansion is accelerating, and it is expected to become a future growth point: in 2023, 2.05 million doses of the PCV13 vaccine were issued in batches (-58% over the same period last year). We believe it was negatively affected by the company's production schedule and the year-on-year decline in the number of newborns. In 2023, the company issued 2.42 million doses/7.35 million doses of quadruplex vaccine/ hepatitis B vaccine, which was -31%/-62% compared with the same period last year. The PPV23 vaccine was rapidly released, and batch issuance in 2023 increased by 301% year-on-year to 1.53 million doses.
In December 2023, the human diploid rabies vaccine (HDCV) independently developed by the company obtained batch issuance certification. As of 1Q24, it has been approved in many provinces and is expected to be released in 2025. In terms of overseas business, 2024 is the company's first year overseas, and cooperation with Indonesia commences as scheduled, and is expected to make a positive contribution to revenue and profit. By the end of 2023, the company had signed sales agreements with more than 10 countries. According to reports, in April 2024, the company signed a memorandum of cooperation with AstraZeneca to actively advance the internationalization strategy.
The purchase was maintained and the target price for DCF was lowered to $33.69: due to the reduction in our profit forecast for 2024-25. Our target price for 2024 is 29x P/E, which is 16x higher than the comparable company average. We believe that the company's PCV13 and HDCV vaccine markets have huge potential, and active overseas business is expected to bring surprising performance in the next few years, so the company should enjoy a certain valuation premium.
Risk warning: 1) the risk of increased market competition; 2) the risk of changes in industry policies; 3) the risk of R&D falling short of expectations; 4) the risk of adverse vaccine events.