Continue to deeply cultivate the fields of medicine and animal protection, and build an integrated industrial layout. The company was founded in 1996 and listed on the Shanghai Stock Exchange in 2021. It is one of the world's largest suppliers of macrolides and quinolone raw materials, one of the largest domestic companies with the largest production capacity of intermediates such as sodium borohydride, potassium borohydride, and cyclopropylamine, and one of the enterprises with the most complete and extensive range of domestic animal protection APIs.

The company's product range is concentrated and diverse, and has a global sales network. By the end of 2023, the company had more than 70 products, sold products to 6 continents, 115 countries and regions around the world, and sold more than 3,000 customers, including world-renowned pharmaceutical companies such as Bayer, Eli Lilly, Abbott, and Novartis. Among them, 17 products with sales revenue exceeding 50 million yuan and 12 products exceeding 0.1 billion yuan. By the end of March 2024, key projects such as the company's fund-raising projects had been completed one after another, and production capacity for major products had been further expanded.

In the pharmaceutical sector, demand in the antibiotic market is expected to continue to be strong, and downstream intermediates are beginning to rise. The company's antibiotic products are in a leading position, and market demand is expected to continue to be strong. The main products include large single product series such as azithromycin, clarithromycin, roxithromycin, and ciprofloxacin hydrochloride, contributing more than 90% of the total revenue of the API sector. From the supply side, the global antibiotic raw materials market concentration is high, the competitive pattern is relatively stable, and the company has a dual competitive advantage in terms of production capacity and price. From the demand side, demand for antibiotics at home and abroad has been strong since 2023, and demand for major antibiotic products is expected to resume growth. At the same time, the company continues to register globally and actively expand the new needs of new customers, which is expected to lead to an increase in product sales. The company is one of the largest domestic companies that can produce intermediates such as sodium borohydride, potassium borohydride, and cyclopropylamine. In 2023, due to poor downstream demand and the high COVID-19 base, the sales revenue of the company's key pharmaceutical intermediates business fell 23.43% year on year. From the supply side, the competitive pattern of the global sodium borohydride market is concentrated. At the same time, the company's production capacity of 4,000 t/a is at the leading level in the industry, and safety and environmental accidents involving industry competitors are expected to lead to an optimization of the competitive pattern; from the demand side, as the global inventory removal cycle gradually comes to an end, the boom in the fine chemicals sector began to rise, or drive an increase in demand for sodium borohydride. China's API production began in April 2024 and achieved positive year-on-year growth for 3 consecutive months. That's an increase of 12.8%.

In the animal insurance sector, the industry is at the bottom of the cycle, and the company has a competitive advantage. The company's main products, fluphenicol, doxycycline, enrofloxacin, etc., already have obvious brand advantages. At the same time, the company is also a major supplier of specialty raw materials for animal protection such as mabofloxacin, sarafloxacin, dikrezuli, cialamizine, gamimycin, etc., and has obvious product matrix advantages. Currently, the animal insurance industry is at the bottom of the cycle. Prices of major veterinary drug APIs continued to fall. At the end of April 2024, VPi reached a record low of 61.02 points in the past 5 years. Compared with the high of 2021, the prices of mainstream varieties of veterinary drug raw materials all declined by varying degrees. Among them, the market price of fluorfenicol fell 75% compared to the high point in the past 5 years. From the supply side, under long-term pressure on costs and profits, the industry's production capacity is expected to continue to clear; from the demand side, pig farming companies are expected to reverse losses, and the pig industry is expected to continue to be highly profitable, driving up demand for veterinary drug raw materials. Starting January 2024, pig profit expectations will continue to be positive, reaching 678.61 yuan/head on August 14, and Muyuan Co., Ltd. and other companies strongly reversed losses in Q2. The company has a complete industrial chain and strong integration capabilities. Currently, the company is one of the producers with the most complete domestic fluorophenicol industrial chain, and the company occupies a leading position in the main veterinary drug API products, which is expected to increase its market share in the context of industry clean-up.

Profit forecasting

We predict that the company's revenue for 2024/25/26 will be 6.001/6.817/7.828 billion yuan, and net profit will be 0.833/1/1.2 billion yuan, corresponding to the current PE of 11/9/8X. Considering the company's high market share of major products and a complete industrial chain, it is expected to achieve 30 large-scale products leading the world, routine production of 80 products, and a production capacity of 120 products. The company's revenue and profit are expected to maintain rapid growth. First coverage, giving a “buy” rating.

Risk warning

Industry policy risk; risk of increased market competition; risk of falling product prices; risk of foreign exchange rate fluctuations;