Report summary

Using specialty APIs as the foundation, we will continue to expand the CDMO and formulation business. The company was founded in April 2010 and listed in 2017. At the beginning of its establishment, it was mainly engaged in R&D, production and sales of specialty APIs; laid out the CRO/CDMO/CMO business in 2018; began to lay out the formulation business in 2021, and the formulation business will start contributing revenue in 2025. Currently, the company's products are mainly divided into nine categories: liver disease, respiratory system, cardiovascular and cerebrovascular products, high-end fluorine products, prostaglandins, antimicrobials, gout, anti-cancer, and neurological. They have many chiral structures and are very difficult to develop. In 2019-2023, the company's revenue and profit continued to grow, and profitability increased rapidly. During the period, the compound revenue growth rate was 27.62%, the compound profit growth rate was 45.95%, gross margin increased by 3.27 pcts, and net margin increased by 12.78 pcts.

The API and CXO business is growing steadily, and the product matrix continues to be rich. The company has a rich variety of products, and R&D drives the iterative volume of the product echelon. In 2019-2023, the compound growth rate of the company's R&D investment was about 13%, reaching 78.0579 million yuan in 2023, and the R&D cost rate was nearly 10%, helping the company to improve its product hierarchy. The first tier products can contribute stable revenue and profits, including dicycline, entecavir, posaconazole, fibustarr, nebivolol, citafloxacin, etc., among which entecavir, dicycloalcohol, and posaconazole have the highest share in the international market; the second tier is products that are expected to be released rapidly. These products will support the growth of revenue and profit over the next 3 years, such as sodium sulugens, glucosamine, etc.; the third tier is currently in the R&D stage and is expected to be released in 3 years.

The formulation will usher in a harvest period, creating a third growth curve. The company cooperated deeply with STADA to advance the formulation internationalization process. In November 2021, the company and STADA signed a “Strategic Cooperation Agreement for Cooperative Development and Commercialization” to further broaden the company's product line. The first pharmaceutical product, imatinib mesylate tablets, is expected to be approved in Europe in 2024, H1 will be approved in China in 2025, and will begin contributing to sales revenue in 2025. The construction of the “High-end Formulation Internationalization Project (Phase I)” project for formulation production capacity is progressing steadily and is expected to be put into operation in 2025. In addition, the company is actively developing an innovative drug business. On the one hand, it invests in new pharmaceutical companies, and on the other hand, introduces and develops new drugs. The new class 1.1 drug brozopent sodium being developed by the company to treat ischemic stroke is in phase II clinical phase.

Profit forecasting

We predict that the company's revenue for 2024/25/26 will be 0.963/1.164/1.581 billion yuan, and net profit will be 0.317/0.384/0.506 billion yuan, corresponding to the current PE of 18/15/11X. Considering the steady growth of the APIs and CXO business, and the formulation business is expected to start contributing incremental revenue in 2025, the valuation should have a premium, and the first coverage is given a “buy” rating.

Risk warning

Industry policy risk; risk of increased market competition; risk of falling product prices; risk of product development failure;