Key points of investment

We believe that 2024-2026 is a critical window period for the company's growth curve to change. At this stage, growth hormone products are expected to continue to grow steadily as the company collects and digests short-term growth hormone and increases the penetration rate of long-term growth hormone, and the continued implementation of innovative varieties brings greater flexibility. The company is expected to continue to upgrade from a business model centered on sales of growth hormone to a leading international comprehensive pharmaceutical company that is deeply involved in women's and children's health. I am optimistic that the company will move from the “1.0 era” with a single field and a domestic focus to the “2.0 era” of diversified and global operations.

Changchun Hi-Tech: From single product drive to diversified growth hormone leading state-owned background, the subsidiary Jinsai Pharmaceutical & Baike Biotech contributed the main revenue and profit. Changchun Hi-Tech was founded in 1993. The long-term performance growth trend is good. The compound revenue growth rate in 2018-2023 reached 22.07%; the compound growth rate of net profit to mother reached 35.13%. As Jinsai Pharmaceutical's long-term growth hormone product sales and promotion work continues to advance, non-growth hormone products are rapidly released, and the new Baike Biotech shingles vaccine market continues to develop, the company's performance is expected to continue to grow steadily. Technological innovation products are being iterated, and R&D intensity continues to increase (cost rate increase). We are optimistic that the company will move towards the “2.0 era” of diversified drivers. As of May 2024, the company has several indications for products under development, such as leuprorelin, long-acting folliculatory stimulating hormone, gentuximab, and kinazumab, which are in phase III clinical and marketing application stages. Innovative products are being rapidly iterated and can be expected to be realized over a long period of time.

Jinsai Pharmaceutical: Kinetic energy switching, multiple drives

Product: Growth hormone structure switching, rapid dosage of non-growth hormone. According to our estimates, the combined revenue growth rate of the company's growth hormone and non-growth hormone products reached 28% and 27% respectively in 2018-2023. Among them, growth hormone products account for about 90% of revenue in 2023 and are the company's core revenue source. We expect that in 2024-2026, short-acting growth hormone will be affected by collection, and revenue fluctuations are expected to decrease and maintain a relatively stable volume. With increased academic promotion, the penetration rate of long-term growth hormone is expected to continue to increase and maintain relatively rapid growth. Overall growth hormone revenue CAGR is expected to reach 7.42% in 2023-2026. We expect to achieve rapid release of non-growth hormones driven by new products. The revenue CAGR in 2023-2026 is expected to reach 38.18%, driving Jinsai Pharmaceutical's overall revenue CAGR to 11% in 2023-2026.

Upgrading: New strategies, innovation and accelerated upgrading. Focus on women's and children's health and position yourself as a global leader. Starting from a single growth hormone, the company actively creates a secondary growth curve, and is committed to becoming a leading global enterprise in the field of women's and children's health. The research and development market uses child health, women's health, immunity, tumors, hearing impairment, and drug-resistant bacterial infections as the six major entry points, covering major indications such as stomach cancer, breast cancer, and prostate cancer, while entering more blue oceans and “niche” markets. Behind the strategic positioning upgrade, there are already multiple post-clinical pipeline support, and I am optimistic that the company's upgrade and transformation will be implemented at an accelerated pace.

Baike Biotech: The growth of chickenpox & nasal spray is still being driven. I am optimistic that the flexible stock of large single shingles vaccines will support stable performance, and that new products will be released quickly. Judging from the main business structure, the single-product shingles vaccine was launched in January 2023. The multi-faceted advantages of safety, adaptability, and pricing are expected to help rapid dosage. The share of revenue in 2023 has reached 48.36%. The share of chickenpox vaccine and nasal spray influenza vaccine in 2023 was 44.92% and 6.67%, respectively. The market share of the 100g biological chickenpox vaccine has been in the leading position for many years and is one of the main sources of revenue; differentiated competition for nasal spray influenza vaccines is expected to return to growth. Driven by new and old varieties, we predict that the compound growth rate of 100 grams of biological income is expected to reach 25% + in 2023-2026.

Profit forecasting and valuation

We expect the company's 2023-2026 revenue CAGR to be 12.28%, net profit CAGR of 10.53%, and 2024-2026 EPS of 12.40, 13.77, 15.13 yuan/share, respectively. The closing price on July 12, 2024 corresponds to 7.5 times the company's 2024 PE, which is 7.5 times lower than the average of comparable companies. We are optimistic about the company's leading position in the field of growth hormone. With the collection and digestion of short-acting growth hormone and the penetration rate of long-term growth hormone, growth hormone products are expected to continue to grow steadily, and the release of the first domestic herpes vaccine can be expected; with the acceleration of strategic transformation and innovation, the continuous launch of high-barrier innovative drugs in 2024-2026 is expected to bring greater flexibility, and the first coverage will give a “gain” rating.

Risk warning

Risk of losing bids/product price reduction; risk of product sales promotion falling short of expectations; risk of product development and registration progress falling short of expectations, etc.;