Key points of investment:

The company is a leading domestic blood products company. The competitive pattern of the industry is concentrated, which fully benefits leading enterprises.

The company is one of the earliest enterprises in China to start industrial production of blood products. Due to its special nature, the entry barriers to the industry are extremely high, and the competitive pattern is highly concentrated. Since 2001, China has not approved the establishment of new blood products manufacturers. The total amount of pulp collected by the six leading companies in 2023 accounts for 70% to 80% of domestic plasma collection, of which the company's plasma collection volume accounts for 1/5 of domestic plasma collection. In the context of high industry concentration, it is expected that leading companies will continue to benefit.

The actual controller, Sinopharm Group, is strong. The number of the company's plasma stations and plasma collection volume are expected to grow steadily, and the barriers to obtaining single plasma collection stations are extremely high. The company's shareholder Sinopharm Group has a clear advantage in obtaining plasma stations due to its own brand power and influence. The number of pulp stations in the company during the 14th Five-Year Plan period increased from 58 in 2019 to 102 in 2023, verifying the company's outstanding ability to obtain pulp station resources. The company continues to maintain its leading position in the number of pulp stations and pulping volume in the country. We believe that, with the strong strength of Sinopharm Group, the number of subsequent pulping stations and slurry harvesting volume of the company is expected to grow steadily.

The product range continues to be rich, and there is room for further improvement in net profit per ton of slurry.

The company currently has a total of 15 varieties in three categories, including human blood albumin, human immunoglobulin, and human coagulation factors, which rank first among domestic blood products companies. In terms of products under development, chromatography has been marketed and sold, recombinant human coagulation factor VIII has been approved for marketing, Chengdu Rongshengren fibrinogen and Lanzhou blood prothrombin complex are in the marketing license application stage, and the subsequent product sequence is sufficient. In 2023, the company's net profit per ton of slurry was 0.458 million yuan, which is at the midstream level of the industry. We believe that the launch of new products is expected to further increase the company's net profit per ton of slurry.

Chromatography is leading the domestic market in terms of listing progress, and is expected to fully benefit from the first-mover advantage to increase profit levels.

As the first fourth-generation intravenous human immunoglobulin at 10% concentration in China, Rongshengjing 10% was marketed and sold in September 2023. Compared with the third-generation, fourth-generation hydroxypropyl has significant advantages in terms of clinical infusion portability, adverse effects, and curative effects. It is expected that it will gradually replace third-generation hydroxypropyl against overseas benchmarks. In terms of product development, currently only Liberal Arts Biotech has completed phase III clinical trials and declared production, Taibang Biotech has completed phase III clinical trials, and Hualan Biotech is undergoing phase III clinical trials. As a leader in chromatography, the company is expected to fully benefit from the first-mover advantage to achieve rapid dosage.

Profit forecasting and investment advice

We expect the company's net profit to be 1.34/1.56/1.83 billion yuan in 2024-2026, respectively, and the net profit growth rate to mother will be 21%/16%/18%, respectively. Using the comparable company valuation method, the average PE multiples for comparable companies in 2024-2026 were 23X/20X/18X, respectively. We believe that considering that the number of pulp stations and pulp collection volume of the company is expected to continue to grow in the future, the new product represented by chromatography is expected to continue to increase the company's profits, and as a leading domestic blood products company, the company is expected to enjoy a certain leading valuation premium, and for the first time, it is covered with a “buy” rating.

Risk warning

Pulp station construction and inspection fell short of expectations; pulping volume fell short of expectations; product sales fell short of expectations