Key elements of the report

Relying on the background of shareholders of central enterprises, the company has strong ability to obtain approval for pulp stations. Since 2021, the new pulp station has abundant resource reserves, and it is expected that it will gradually enter a profit redemption period in the future. In the long run, blood products are a high-barrier resource-based circuit, and the company is expected to achieve steady growth through both endogenous growth and epitaxial expansion.

Investment highlights:

Empowered by central enterprises, pulp stations have strong approval capabilities, and capacity construction matches growth needs. The company leads the industry in many blood products business indicators. As of the 2023 annual report, the company has 15 varieties of blood products. Single plasma collection stations are distributed in 16 provinces/autonomous regions across the country, with a total of 102, of which 80 are in operation. The 79 affiliated single plasma collection stations have collected 2,415 tons of plasma, accounting for about 20% of the total amount of plasma collected in the domestic industry. Since 2021, the number of pulp stations in the company has grown rapidly, and the resources for newly built pulping stations are abundant. The number of pulping stations not yet in 2021/2022/2023 is 24, 32 or 22, respectively. In the future, as the new pulping stations are put into use and the new pulp stations gradually mature, the performance is expected to gradually be realized as the pulping volume increases. In addition, the company's three production capacities under construction (Chengdu Rongsheng Yong'an Plant, Shanghai Blood System Yunnan Project, and Lanzhou Blood System Lanzhou Project) are under construction, with a design capacity of 1,200 tons. After commissioning, the production capacity of the six blood products production bases is about 5,000 tons, which is in line with the company's future growth needs.

Pulp harvesting efficiency and comprehensive utilization of slurry sources are expected to improve profitability. The company's current pulping efficiency is low, mainly because the new pulping station is dragging down the pulping volume level at a single station; the company has a large variety layout, but the revenue structure mainly favors low-profit varieties, which is dragging down the overall gross margin level and profit level of tons of pulp. In the future, as the company's pulp station enters a mature stage and develops new varieties, the proportion of high-margin varieties will increase, and the company's plasma collection efficiency and comprehensive plasma utilization rate will have a lot of room to grow, driving the profit level of tons of slurry to increase.

With the layout of hematogenesis and recombinant new products, it is expected that the future will usher in a harvest period. The company maintains a leading position in the domestic industry in the research and development of recombinant human coagulation factors and human immunoglobulin products. The research pipeline includes more than ten blood products and genetically recombinant products, focusing on new products such as high-concentration human immunoglobulins, hematogenous coagulation factors, recombinant coagulation factors, and microprotein preparations. The company is currently the only company in the domestic blood products industry that has deployed recombinant human coagulation factor products and approved for marketing. In 2023, the first domestic fourth-generation chromatography process independently developed by Chengdu Rongsheng was approved for marketing with 10% concentration of intravenous human immunoglobulin (pH4). The new products are expected to optimize the company's revenue structure and maintain the company's long-term competitive advantage within the industry.

Profit forecast and investment suggestions: The blood products circuit has high barriers and product demand is stable. The company is the leader of the blood products circuit, and the plasma station has strong approval capabilities. Based on research on the industry and companies, we expect the company's net profit to be 1,358 billion yuan/1,639 billion yuan/1,992 billion yuan respectively, corresponding to EPS 0.69 yuan/share, 0.83 yuan/share, 1.01 yuan/share, corresponding to EPS of 0.69 yuan/share, 0.83 yuan/share, 1.01 yuan/share, corresponding PE is 43.85/36.33/29.90 (corresponding to June 19, 2024) The closing price was 30.12 yuan), which gave it a “buy” rating for the first time.

Risk factors: risk of insufficient supply of raw materials, risk of rising pulping costs, risk of product development progress falling short of expectations