On May 20, the company issued an announcement stating that it plans to acquire shares in Baiyang Pharmaceutical, Baiyang Investment, Baiyang Yiren and Baiyang Kanghe from the controlling shareholder Baiyang Group to hold a total of 60.199% of Baiyang Pharmaceutical's shares, with a total transaction price of 800 million yuan. The overall valuation of Baiyang Pharmaceutical in this assessment is 1,637 billion yuan.
Baiyang Pharmaceutical: It has large potential products, and performance is expected to grow at an accelerated pace.
Proprietary Chinese Medicine: Mainly correcting and reducing stagnation, achieved revenue of 530 million yuan (yoy +4.3%) in 2023, mainly due to strong procurement demand at the end of 2022, leading to a high base (revenue yoy +19.5% in '22). Fuzheng Huazui is an exclusive variety of Baiyang Pharmaceutical, and has been included in the national medical insurance catalogue and the national basic drug catalogue; in terms of sales, by the end of 2023, Fuzheng Huazhu had covered nearly 6,200 hospitals across the country, and plans to further develop about 6,000 hospitals in the future; in terms of production and supply, Baiyang Pharmaceutical is carrying out a second phase expansion project of its proprietary Chinese medicine production line, and is expected to be put into operation by the end of 2024. After completion, it will add 500 million capsules/year of production capacity for Fuzheng Huayu products. In 2024-2026, proprietary medicines are expected to achieve revenue of 6.2/72/83 billion, respectively, with a growth rate of 18.1%/15.8%/14.9%.
Chemicals: A variety of high-end controlled-release formulations, which achieved revenue of 230 million yuan (yoy +81.7%) in 2023, mainly benefiting from the successive national procurement of products such as duloxetine, nifedipine, and celecoxib, and metformin through national negotiations. Currently, there are 3 domestic companies that have passed the consistency evaluation for metformin hydrochloride extended-release tablets (III). In terms of production capacity, the technical reform of the chemical production line was completed in 2023; at the same time, construction of the “Tablet, Granule, Hard Capsule Production Workshop and Supporting (Phase III) Project” began in October 2023, with a total investment of about 250 million yuan, which is expected to be completed by the end of 2024. In 2024-2026, chemicals are expected to achieve revenue of 30/43/ 5.2 billion yuan, respectively, with a growth rate of 31.3%/43.8%/20.9%.
Performance betting with Baiyang Group: Baiyang Pharmaceutical is expected to achieve revenue of 9.28/11.59/1,358 million yuan in 2024-2026, with a growth rate of 22%/25%/17%; it is expected to achieve net profit of 148/177/222 million yuan in 2024-2026, respectively, with a growth rate of 9.8%/20%/25%. Baiyang Group promised that Baiyang Pharmaceuticals will achieve an audited net profit of not less than 144/1.72/215 million yuan in 2024-2026, respectively.
Maintain a “Highly Recommended” investment rating. Baiyang Pharmaceutical's acquisition of Baiyang Pharmaceuticals will help Baiyang Pharmaceutical upgrade from a CSO commercial platform to an industrialized platform and improve the sustainability and stability of the company's performance. Considering that this transaction does not constitute a major asset restructuring of a listed company, does not require approval from relevant departments, is a related transaction, and needs to be submitted to the shareholders' meeting for review, we assume a smooth merger in 2024. We expect to achieve a net profit of 94/12/16 billion yuan in 2024-2026, corresponding to 18/14/11 times PE, maintaining a “highly recommended” rating.
Risk warning: changes in pharmaceutical policies, concentration of brand operations, intensification of market competition, etc.