The company's 2023 annual report: In 2023, the company achieved operating income of 3,931 billion yuan, a year-on-year increase of 5.89%; net profit to mother - 189 million yuan, a year-on-year decrease of 117.37%; net profit after deducting non-return to mother - 168 million yuan, a year-on-year decrease of 115.54%. In the fourth quarter of 2023, the company achieved operating income of 789 million yuan, a year-on-year decrease of 8.38%; net profit to mother - 1,029 million yuan, a year-on-year decrease of 659.75%; net profit not attributable to mother - 991 million yuan, a year-on-year decrease of 648.45%.

The company's 2024 quarterly report: In the first quarter of 2024, the company achieved operating income of 1.04 billion yuan, a year-on-year decrease of 23.19%; net profit to mother was 177 million yuan, a year-on-year decrease of 46.68%; net profit after deducting non-return to mother was 171 million yuan, a decrease of 48.12% year-on-year.

The performance of 23 and 24Q1 was under pressure due to factors such as falling prices of heparin products, inventory impairment, increased R&D expenses, and foreign exchange. Downstream heparin companies faced inventory removal in '23, demand for heparin APIs declined to a large extent, industry competition intensified, and heparin prices dropped sharply. According to data from the General Administration of Customs, the average quarterly price of heparin exports in the first three quarters of 23 was 9,339 US dollars/kg, the average price for the 23Q4 quarter was 5,426 US dollars/kg, and the average price for the 24Q1 quarter was 5,026 US dollars/kg. The price of heparin has dropped rapidly since 23Q4, causing the settlement price of some of the company's sales orders to be lower than the unit balance cost. In '23, the company prepared 1,244 billion yuan for the corresponding inventory price drop, resulting in a net profit of -189 million yuan. The R&D expenses of the 23 and 24Q1 companies were 372 million yuan (+41.2% year over year) and 74.9 million yuan (+10.7% year over year); the 23 and 24Q1 R&D expenses rates were 9.47% (+2.37 pct year on year) and 7.46% (year on year +2.29 pct), respectively, mainly due to the company's promotion of biopharmaceutical research and development. The company's financial expenses in '23 were -74.2 million yuan, and in '22 it was -129 million yuan. It was mainly due to a decline in exchange earnings due to exchange rate changes.

Standard heparin raw materials: the share of revenue and profit declined further. In '23, we achieved sales revenue of 997 million yuan, a year-on-year decrease of 10.12%, accounting for 25.42% of main business revenue. The gross margin was 33.63%, -6.90pct year on year, accounting for 17.63% of gross profit.

Formulations: US formulations are growing rapidly, and global expansion is accelerating. In '23, sales revenue was 2.772 billion yuan, up 12.75% year on year, accounting for 70.66% of main business revenue. The gross margin was 54.51%, -4.05 pct year on year, accounting for 79.41% of gross profit.

Pharmaceutical exports: The company's foreign formulation sales revenue exceeded 1.9 billion yuan in '23, an increase of more than 25% over the previous year. Among them, US pharmaceutical revenue was 1.63 billion yuan, +37.71% year-on-year. In terms of products, as of 2023, the company has operated more than 50 products in the US market, making it one of the suppliers with the most complete injection sales pipeline in the US. In '23, the company obtained approval for 10 drugs from the US FDA and outsourced more than 10 ANDA approved technologies and patents at one time. In '23, the company and Tonghua Dongbao reached a cooperation on the three types of insulin: mentong, glycine, and laipong, to jointly develop the US market. In terms of production capacity, the 23-year high-efficiency and intelligent high-end pharmaceutical production line construction project was completed and accepted, 6 new production lines successfully passed FDA on-site inspections, and the company's high-end manufacturing capacity was further enhanced. In the future, with the further expansion of the company's product pipeline in the US, the gradual launch of approved products, and the layout of large single products such as white purple and liraglutide that may be approved in the second half of the year, it is expected that the sales scale and profitability of the US formulation market will further increase.

Domestic formulations: In '23, the company's enoxaparin sodium injections and natriparin calcium injections won the bid for the 8th batch of centralized national pharmaceutical procurement. Domestic formulation sales increased by more than 25% over the previous year.

CDMO: More stable. In '23, we achieved sales revenue of 154 million yuan, up 9.58% year on year, accounting for 3.92% of main business revenue, gross margin of 35.32%, -3.32pct year on year, accounting for 2.85% of gross profit.

Profit forecast and investment rating: Jianyou Co., Ltd. is a scarce global platform for high-end formulations in China. It has been operating the overseas injection business for many years. Under the three-pronged approach of sterile injections+Biosimilars+ Biologics, overseas formulations are expected to maintain a rapid growth trend. Fluctuations in the heparin API cycle have further reduced the impact on the company's performance, and it is optimistic about the company's long-term development value. Considering factors such as the continued impact of the decline in heparin prices and the rising cost of overseas heparin preparations, we adjusted the company's profit forecast. The company's net profit forecast is estimated to be 9.1/11.7/1.5 billion yuan in 2024-2026, corresponding to PE 22/17/13 times, maintaining the “increase” investment rating.

Risk warning: Heparin price fluctuations, industry policy changes, R&D sales falling short of expectations, exchange rate fluctuations, etc.