Investment highlights

For the first time, Jiudian Pharmaceutical (300705) was covered to give the industry a rating of outperforming. The target price was 32.00 yuan. Based on the P/E valuation method, it corresponds to 30 times P/E in 2024 and 1.0 times PEG in 2024. The reasons are as follows:

China's transdermal drug delivery market has ushered in an upgrade and transformation, and chemical paste has great potential for growth. The “Multidisciplinary Guidelines for Rational Application of Topical NSAIDs for Musculoskeletal Pain (2016)” recommends topical NASIDs for the treatment of musculoskeletal pain. According to Yao Rongyun, in 2023, the domestic and foreign market for cosmetic paste was about 20.4 billion yuan, of which chemical paste accounted for 34% and proprietary Chinese medicine paste accounted for 66%; in 21-23, the sales CAGR of hospital chemical paste reached 9.67%, higher than 0.56% of traditional Chinese medicine paste sales. The retail sales CAGR of chemical paste reached 2.02%, which is also higher than 1.57% of traditional Chinese medicine paste.

The company is a leading domestic chemical medicine gel patch, and its performance has continued to grow at a high rate in recent years. According to the company's announcement, the company uses transdermal administration as a key strategy. In 2017, it launched loxoprofen sodium gel patch, which contributed 1.547 billion yuan in revenue in 2023, an increase of 18.7% over the previous year, accounting for 57.4% of revenue; in 2023, ketoprofen gel patch formed a synergy effect with Rosol to jointly develop the in-hospital market. With the influence of Rosso's products, the company has successfully achieved full coverage of “in-course+offline+e-commerce”: the hospital is a key sales area, and we expect that the price-for-volume logic will gradually be realized; offline OTC is rapidly expanding, and cooperative pharmacy chains are rapidly increasing; and online e-commerce has been built from scratch to transformation from proxy operation to self-operation. We are optimistic about the sales potential of the company's loxol and ketoprofen patches, and their sales are expected to continue to grow steadily in the future.

The company has a rich research pipeline to create a full line of topical anti-inflammatory and analgesic products. According to the company's announcement, in addition to loxoprofen sodium gel patch and ketoprofen gel patch, the company has more than 15 products under development. By the end of 2023, the company has submitted marketing applications for 4 products, including Jiaoqi Musk Gel Patch, Indomethacin Gel Patch, Lidocaine Gel Patch, and Riprodicaine Cream. We expect these products to be launched one after another in the next 2-3 years, and work together to build the company's full line of external paste products.

What is our biggest difference from the market? We believe that the domestic chemical gel patch competition pattern will remain stable in the short term. The company is expected to use two major products to maintain steady growth in the in-hospital market and rapidly expand OTC and e-commerce channels outside the hospital.

Potential catalysts: Out-of-hospital doses of loxoprofen sodium gel patch exceeded expectations; in-hospital doses of ketoprofen gel patch exceeded expectations.

Profit forecasting and valuation

We expect the company's 2024-2025 EPS to be 1.06 yuan, 1.27 yuan, and CAGR of 29.27%, respectively.

The current stock price is 23.4 times/19.5 times the 2024/2025 P/E, respectively. Based on the P/E valuation method, the first coverage was given a “outperforming industry” rating and a target price of 32.0 yuan, corresponding to 30 times P/E in 2024, 1.0 times PEG in 2024, with 29.2% upward space.

risks

The competitive landscape intensified, sales fell short of expectations, and R&D progress fell short of expectations.