Key points of investment
Incident: Baiyang Pharmaceutical plans to acquire 60.199% of Baiyang Pharmaceutical's shares for 800 million yuan Baiyang Pharmaceutical Co., Ltd. and Baiyang Pharmaceutical plans to acquire 60.199% of Shanghai Baiyang Pharmaceutical Co., Ltd.'s shares with 800 million yuan in cash. If this transaction is completed, Baiyang Pharmaceuticals, Baiyang Investment, Baiyang Yiren and Baiyang Kanghe will be included in the scope of the company's consolidated statements. According to the company announcement, Baiyang Pharmaceutical achieved revenue of 760 million yuan, net profit of 135 million yuan, and a gross profit margin of 63.5% in 2023. In terms of revenue structure, in 2023, Baiyang Pharmaceutical accounted for about 70% of the revenue of proprietary Chinese medicines and about 30% of the revenue from chemicals. The main products include fuzhengtsia, metformin, and nifedipine.
Looking at the short term: Optimistic about the product structure optimization and new momentum brought by Baiyang Pharmaceutical. We believe that Baiyang Pharmaceutical's products have clear growth potential and certain scarcity, and excellent profitability. After the merger, Baiyang Pharmaceutical may optimize the company's revenue scale and profitability to a certain extent. In terms of proprietary Chinese medicines, according to the company's announcement, the revenue growth rates of the company's proprietary Chinese medicine sector are expected to be 18.07%, 15.82% and 14.88% respectively in 2024-2026. The growth support mainly comes from: ① There is plenty of room for hospital expansion. By the end of 2023, sales of Fuzheng Huaxu products had covered nearly 6,200 hospitals across the country, and plans to further develop about 6,000 hospitals in the future; ② Fuzheng Huayu is the first Chinese medicine in the field of liver disease in China to complete phase II clinical trials. It has more than 20 years of clinical use experience in China. The product with the largest share in the anti-liver fibrosis field is optimistic about its accelerated release, empowered by Baiyang Pharmaceutical's mature commercialization system at both ends. In terms of chemicals, according to the company's announcement, the company's revenue growth rates in the chemical sector are expected to be 31.33%, 43.76%, and 20.87% respectively in 2024-2026. The growth support mainly comes from: ① regional renewal of varieties that have already been selected, and medical insurance catalogue products such as metformin hydrochloride extended-release tablets continue to advance; ② a number of potential collection products that have been approved and not put into production (such as esomeprazole enteric capsules, fibuster, glucosamine sulfate, lanthanum carbonate chewables, etc.) are expected to gradually start in 2024 or 4 Amount of discharge.
Long-term perspective: Optimistic about the new growth space brought about by the extension of production-side service capabilities. We believe that this acquisition marks the company's transformation from an asset-light commercialization platform to a “Pharma” model, and also marks the extension of the company's commercial service capabilities from sales to production. With the gradual approval of innovative pharmaceutical products independently incubated by Baiyang Group, we believe that the company is already in the window of gradual release of the second growth curve after 2024, and we are optimistic that the addition of production-side service capabilities will bring new growth space to the company.
Profit forecasting and valuation
Considering that the current acquisition plan has not been reviewed by the company's shareholders' meeting, without considering Baiyang Pharmaceutical's merger, we expect the company to achieve operating income of 83.26/93.08/10.724 billion yuan in 2024-2026, an increase of 10.07%/11.80%/15.20%; achieve net profit to mother of 8.44/10.93/1,499 billion yuan, up 28.60%/29.53%/28.85% year on year, corresponding EPS of 1.61/2.08/2.68 yuan/share, 2024 The closing price on May 20 was 21 times PE, maintaining the “gain” rating.
Risk warning
There is a risk of short-term fluctuations in upstream and downstream operations due to the accelerated liquidation of the industry; the risk of fluctuations in sales of core products; and the risk of new brand expansion falling short of expectations.