Key points of investment:

The negative effects of the collection of old drug varieties have been clarified: Since the “4+7” collection, varieties with high potential collection risks have basically been collected, including narcotic dexmedetomidine and flumazenil, psychotropic aripiprazole tablets, risperidone tablets, clozapine tablets, and duloxetine hydrochloride enterosols, citalopram hydrobromide tablets, and gabapentin capsules for nerve lines. Among the remaining core formulation products, Liyuexi has now been upgraded to a refined class 1 controlled drug, and the risk of collecting products with high administrative barriers is low, and the possibility of collecting Forli as an exclusive dosage form nationwide is low. The biggest negative impact of collection on the company has been reflected in the revenue and profit side of the past few years, and the risks of collection have basically been clarified.

“Hydroxerichua” +TRV130 is in the expansion period and is expected to drive high performance growth: in 2023, the company's anesthesia line achieved revenue of 2.7 billion yuan (+24.3%), contributing 2.39 billion yuan (+21.8%) in gross profit.

The increase in revenue from the anesthesia line is mainly due to the release volume of the core variety “Hydroxyleshua”. According to PDB data, oxycodone injections achieved revenue of 73 million yuan (+278.3%), remifentanil 63 million yuan (+55.7%), sufentanil 15 million yuan (+93.0%), and alfentanyl 675,000 yuan (+2498%). The four major varieties are currently growing rapidly. Furthermore, the narcotic drug TRV130, which was newly approved in April 2023, has now been included in the 2023 medical insurance catalogue. This product is expected to consolidate the company's advantages in post-operative analgesia and bring new performance increases to the company. We believe that the company's formulation side, especially the anesthesia line, is expected to achieve rapid growth driven by “Xyriazu” +TRV130.

“Self-development+BD” constructs the company's long-term growth curve: (1) Self-research: In the field of anesthesia, in 2023, the company completed phase II clinical trial of NH600001 emulsion injection (etomide long chain modification class 1 innovative drug) and will soon enter phase III. There are also a number of new antidepressant and refined drugs in the self-developed pipeline that are in clinical phase I and II. (2) In terms of external cooperation: TRV130, which cooperated with Trevena in 2023, was successfully marketed and included in the current medical insurance catalogue. In February 2024, the company and Teva signed a cooperation agreement on antitan (used to treat chorea and tardive movement disorder (TD) related to Huntington's disease (HD) in adults), which further consolidated the company's neurological product pipeline. Furthermore, Protollin, a collaboration with Tianjing Biotech, and the NHL357000 project with Lundbeck are progressing smoothly. In the long run, Enhua Pharmaceutical has built a rich product matrix through the form of “self-development+external cooperation”, and there is sufficient momentum for long-term growth.

Profit forecasting and investment advice

We expect the company's revenue growth in 2024-2026 to be 21%/20%/21%, respectively, the net profit growth rate to mother of 20%/21%/21%, and EPS of 1.23 yuan, 1.49 yuan, and 1.81 yuan respectively. Using the comparable company valuation method, the average PE multiplier for comparable companies in 24 years was 37 times. We believe that the company is currently in an undervalued position, and that the company's future product pipeline is rich, and for the first time, coverage was given a “buy” rating.

Risk warning

Risk of product sales falling short of expectations, risk of industry policies falling short of expectations, drug R&D innovation, generic drug development and consistency evaluation