Key points of investment:

Non-compulsory immunization of porcine vaccine prefaecal organisms. Keqian Biotech is a biomedical enterprise focusing on R&D, production, sales and epidemic prevention technology services for veterinary biological products. It mainly produces non-national vaccines for pigs and poultry. Deeply involved in the field of veterinary biological products for more than 20 years, the company has obtained 43 veterinary drug registration certificates and can produce 58 veterinary biological products. In 2018-2022, the company ranked second in the sales revenue ranking of the non-national compulsory immunization veterinary biological products market and ranked first in the sales revenue ranking of the non-national compulsory immunization pig biological products market. It is a veritable leading domestic non-compulsory immunization pig vaccine enterprise.

Focus on improving downstream profits to drive the recovery of the animal health industry. Animal health is a “small but beautiful” farming service industry, and demand is affected by both downstream farming profits and farming scale. In the short term, the improvement in downstream aquaculture profits is expected to drive the restoration of appetite for epidemic prevention and a recovery in industry sentiment. In the long run, although enterprises face fierce competition due to excess production capacity in the industry, downstream farms urgently need high-quality vaccines with better epidemic prevention effects, driving demand for “high-end” animal health products. Leading animal insurance companies are breaking through various channels: including product updates and iterative upgrades, and improving customer service capabilities. Focus on industry growth brought about by potential new varieties: (1) African swine fever vaccine: A number of research institutes have cooperated with universities and listed companies to report emergency evaluations of the African swine fever vaccine on various routes. If successfully launched, it is expected to increase the scale of the industry by more than 10 billion dollars; (2) Cat triple vaccine: when domestic replacement of the largest variety of pet vaccines is underway. Currently, 8 domestically produced cat triple vaccines have passed emergency evaluation, and some companies are expected to reap the first-mover advantage in market development through product advantages (localized strains, price advantages, etc.).

The “upstream source” has strong R&D strength, and the R&D team led by academicians has a complete system. The company has a high-level R&D talent team with Mr. Chen Huanchun, an Academician of the Chinese Academy of Engineering at the core, accounting for a high proportion of R&D personnel: at the end of 2023, the proportion of R&D personnel was 30.12%, higher than the industry average; moreover, the proportion of R&D personnel with master's degree and doctoral students reached 58.63%. “Two-wheel drive” R&D system - cooperative R&D and independent research and development: Deeply linked to universities and research institutes such as Huazhong Agricultural University, Harbin Veterinary Research Institute, etc., and the company has established and used many research technology platforms. Large R&D investment: In 2018-2023, the company's R&D investment increased from 47.64 million yuan to 88.51 million yuan, and the R&D cost rate remained at 5%-10%, ranking among the highest in the industry.

Core products have significant advantages, and new products have created a “new growth curve”. Traditional dominant product varieties - the porcine pseudorabies vaccine and the porcine gastroenteric vaccine account for a high market share. (1) Pseudorabies vaccine: Using local strains, it is highly targeted and has good epidemic prevention effects. It ranked first in the industry with a market share of 49% in 2022. As subsequent product iterations and upgrades continue, the leading position is expected to continue to be consolidated. (2) Gastrointestinal dual vaccine: It was the first to market the mutant double active vaccine and the double active vaccine, with a market share of 57% in 2022. At the same time, the company also launched a new product against the porcine diarrhea virus: the porcine coronavirus inactivated vaccine (CHN-HN-2014 strain). The new veterinary drug review was completed in 2024. At the same time, the company is actively deploying two major industrial incremental varieties: the African swine fever vaccine and the feline triple vaccine: (1) African swine fever vaccine: laying out two technical paths for subunits and live carriers. The relevant vaccines have already been declared for emergency evaluation; at the same time, “Kejian Peptide” was launched to improve the layout of the anti-plague product line. (2) Cat triple vaccine: The company's cat triple vaccine has passed an emergency evaluation by the Ministry of Agriculture and Rural Affairs and obtained an approval number. It uses popular domestic strains and is more targeted.

Deepen accurate marketing and adhere to customer orientation. Combining “direct sale+distribution”, the company implements precise marketing strategies and adopts one-on-one accurate services for large farming groups; at the same time, it covers small and medium-sized farmers through deep cooperative dealers, and its strong R&D and technical level also provides strong support for the company's professional marketing team. It is expected that the company's marketing capabilities and development efforts will continue to be strengthened, and the customer penetration rate of large groups will further increase.

First coverage, giving a “buy” rating. I am optimistic that the company will usher in a significant recovery in sales of non-compulsory immunization vaccines against the backdrop of improved profits in downstream farming; at the same time, the company is expected to benefit from the expansion of the scale of new varieties in the industry and the introduction of new products of its own, and achieve a significant increase in revenue and profit. We expect the company to achieve operating income of 12.16/13.70/1,548 billion yuan in 2024-2026, +14.3%/+12.6%/+13.0% year over year; net profit to mother of 4.79/5.50/630 billion yuan, +21.0%/+14.9%/+14.4% year-on-year. The current stock price for 2024-2026 PE is 14X/13X/11X, respectively. We gave the company an average PE valuation level for the industry in 2024. The target market value has room to increase by about 21.22% compared to the current market capitalization.

First coverage, giving a “buy” rating.

Risk warning: the risk of new product development falling short of expectations; the risk of increased market competition; business risks caused by policies, etc.