Key points of investment

A leader in the steroidal hormone industry, the integration of API formulations provides growth momentum: after more than 50 years of development, Xianju Pharmaceutical adheres to the integrated business model of APIs and formulations, and has become a leader in the domestic steroidal hormone industry. In the short term, the company's growth momentum comes from upgrading production processes and improving the quality and efficiency of varieties on the raw material side; as well as clarifying the impact of formulation-side collection and the release of stock varieties; in the long run, the company's growth momentum comes from the forward-looking layout of APIs and formulations in high-end overseas markets, rich reserve varieties, and high-end formulation volumes.

The API business continues to create high barriers and forward-looking layout of the high-end regulatory market: the steroidal drug market has broad capacity, high entry barriers, and high industry concentration. The company has long focused on the steroidal hormone business field and has been in business for decades. In 2023, the company's API sales revenue was 1.786 billion yuan, up 3% year on year, accounting for 43% of total revenue. 2024Q1 API revenue was 0.465 billion yuan, up 3% year on year. Activation of stock varieties, technological upgrading (sterile APIs, etc.), continuous improvement of the steroid product line, extension of the industrial chain to key intermediates, and penetration of the customer structure into the standardized market are important points of focus for the development of the API business. The company will continue to consolidate the middle- and low-end non-regulated markets, actively expand the international high-end regulatory market with Yang Fu Factory passing the US FDA and WHO certification as a new starting point, and Italy's Newchem as a benchmark to inject momentum into the company's continued growth in performance.

The impact of preparation collection is gradually being clarified, and the declaration of the major innovative drug omexone sodium is imminent: formulation revenue in 2023 was 2.278 billion yuan, down 12.4% year on year, accounting for 55% of total revenue; revenue from 2024Q1 formulation was 0.57 billion yuan, up 13% year on year, returning to positive growth. The effects of progesterone capsules, acracuronium, and rocuronium bromide collection products are gradually being clarified; the new drug omexone, class 1.1, is a new generation of targeted muscle relaxation antagonists, which is expected to be declared an NDA in 2024, and has good market prospects.

Profit forecast and valuation: The company is expected to achieve revenue of 4.596/5.218/5.996 billion yuan and net profit of 0.693/0.839/1.019 billion yuan in 2024-2026. The 2024-2026 PE valuation is 17/14/12 times. Considering that the production capacity of the company's Yangfu API factory is expected to gradually rise, the impact of the collection is expected to basically clear the approval of multiple products and the phased catalysis of the new class 1 drug omexone sodium. It was covered for the first time, giving it a “buy” rating.

Risk warning: capacity utilization growth falls short of expectations; pharmaceutical policy changes or falls short of expectations; product sales fall short of expectations; R&D progress falls short of expectations