Key points of investment:

2023: Get rid of the “COVID-19 burden”, and the volume of conventional products is obvious. The company's revenue in 2023 was 360 million yuan, down 65% year on year, net profit loss to mother of 1.48 billion yuan, and net cash outflow from operating activities of 910 million yuan.

The main reasons for the increase in the company's losses: (1) the sharp decline in revenue related to the COVID-19 vaccine, and the company reasonably estimates the return amount of COVID-19 vaccine products that have occurred or may have occurred to reduce vaccine revenue; (2) fixed costs corresponding to redundant COVID-19 vaccine production capacity are included in operating costs; (3) impairment tests on asset items showing signs of impairment and accounting for losses, etc. In 2023, the company's two influenza conjugate vaccines achieved sales revenue of about 550 million yuan, an increase of about 266% over the previous year.

2024Q1: Conventional vaccines continue to grow, and cost reduction and efficiency are beginning to show results. The company's 2024Q1 revenue was 110 million yuan, up 14% year on year, net profit to mother - 170 million yuan, and net operating cash flow outflow was 110 million yuan.

(2024Q1 Shangyao Cansino is no longer included in the scope of the company's merger, and the company's total assets and total liabilities declined, resulting in an investment loss of 70.51 million yuan.)

2024Q1's sales expenses ratio was 41%, down 14 pcts from the same period last year, the management expense ratio was 32%, down 28 pcts from the same period last year, the R&D expenses rate was 85%, 64 pcts lower than the same period last year, the financial expenses ratio was -20%, and 26 pcts lower than the same period last year.

The clinical results of the global innovative recombinant pneumococcal protein vaccine phase I were positive. Unlike PPV23 and PCV13 that have already been marketed, PBPV is not a serotype-specific vaccine. It mainly uses an antigen based on pneumococcal surface protein A (pSpA, a highly conserved protein expressed by almost all pneumococci), and has a higher serum coverage rate (at least 98% coverage of pneumococcal strains). Phase Ia and phase Ib clinical study results showed that PBPV has good safety in adults and the elderly, and no grade 3 adverse effects or special safety risks were observed; at the same time, a single dose of vaccination can induce significant binding antibodies and functional bactericidal antibody responses against cross-family/subtypes of pneumococci, further proving the broad spectrum and potential public health value of this vaccine candidate.

There are plenty of research pipelines. The company's PCV13i is in the registration process. DTCP for infants and young children has completed phase III enrollment, Tdcp for adolescents and adults has completed phase I clinical trials, adsorbed tetanus vaccine phase III clinical trial, and the Hib vaccine has been applied for clinical trials and accepted. Additionally, the company's recombinant shingles vaccine (intramuscular and inhaled administration) is undergoing phase I clinical trials in Canada, and phase I clinical trials of the recombinant polio vaccine in Australia.

Many other pipelines are in the clinical or pre-clinical phase.

Profit forecasting and valuation. We expect the company's revenue in 2024-26 to be 840 million yuan, 1.16 billion yuan, and 1.98 billion yuan, respectively, up 136%, 38%, and 70% year-on-year, respectively; net profit to mother in 2024-26 is -40 million yuan, -120 million yuan, and 130 million yuan. We assume a sustainable growth rate of 1.20 to 1.80% and a WACC value of 7.74 to 8.34%, then the company's corresponding target price is 68.15 yuan/share, corresponding to a market value of 16.86 billion yuan, giving it a “superior to the market” rating.

Risk warning: R&D progress falls short of expectations, commercialization progress falls short of expectations.