Core views

In the first half of 2024, due to the competitive landscape and inventory removal, the company's performance was under pressure in the short term. Among them, the 24Q2 company's performance improved significantly from month to month, mainly due to the official listing and sales of the company Diploid Mad in 24Q2, contributing to the increase in performance. It is expected that in the second half of the year, as the company accelerates the release of new products, performance is expected to continue to improve month-on-month. The company's international business is progressing actively. It signed a “Memorandum of Strategic Cooperation” with AstraZeneca to export PCV13 vaccine stock solution and finished products to Indonesia in July-August. The company has a rich research pipeline, continues to promote R&D progress, and provides sufficient guarantees for subsequent growth.

occurrences

The company released its 2024 semi-annual report, and the performance fell short of expectations

On August 29, the company released its 2024 semi-annual report. The first half of the year achieved: 1) operating income of 1.202 billion yuan, a year-on-year decrease of 30.54%; 2) net profit to mother of 0.165 billion yuan, a year-on-year decrease of 67.61%; 3) net profit of 0.122 billion yuan after deducting non-return to mother, a year-on-year decrease of 71.66%; 4) basic earnings per share of 0.15 yuan. The results fell short of previous expectations.

Brief review

First-half results were under short-term pressure, with significant month-on-month improvement in 24Q2

In the second quarter of 2024, the company achieved operating income of 0.75 billion yuan, a year-on-year decrease of 23.60%; net profit to mother of 0.111 billion yuan, a year-on-year decrease of 63.51%; net profit after deducting non-attributable net profit of 0.107 billion yuan, a year-on-year decrease of 55.26%. The revenue side of 24Q2 and 24H1 companies declined year-on-year, mainly due to factors such as market competition and inventory reduction, and product sales declined significantly; the profit side showed a large decline, mainly due to factors such as: 1) the year-on-year decline in revenue; 2) the increase in equity incentive amortization expenses and fixed asset depreciation expenses. On a month-on-month basis, 24Q2 showed significant improvements. Among them, the revenue side increased 66.14% month-on-month, net profit to mother increased 105.81% month-on-month, and net profit after deducting non-return to mother increased 646.83% month-on-month, mainly due to the official listing and sales of the company Diploid Mad Miao since 24Q2, contributing to the increase in performance.

Batch issuance achieved relatively rapid year-on-year growth, and human diploid fever contributed to the increase in performance. In terms of batch issuance, 24H1 PCV13 achieved batch issuance of 1.9988 million doses (+356.45%), quadruple vaccine 1.4441 million doses (+58.43%), hepatitis B vaccine 4.449 million doses (+3.69%), human diploid vaccine 0.9049 million doses, 23-valent pneumonia vaccine 1.3691 million doses (+19.25%), Hib vaccine 0.6454 million doses (no approval in the same period last year) Issuance), the number of batches issued for each product has achieved a relatively rapid increase. In the first half of the year, the company actively strengthened the marketing and recruitment of live attenuated human diploid vaccines and live attenuated varicella vaccines. The human diploid vaccine was officially marketed in April 2024. By the end of 24H1, 26 provinces, autonomous regions, and municipalities directly under the Central Government had been approved for sale; the live attenuated chickenpox vaccine was approved for marketing in April 2024, and has now been approved for sale in 10 provinces and municipalities directly under the Central Government. Sales revenue of 24H human diploid vaccine was 0.117 billion yuan, contributing to the increase in performance.

Continue to promote the R&D pipeline and enrich the product layout. The company has a rich R&D technology platform and R&D pipeline, and various research pipelines are progressing steadily.

Since 2024, many of the company's products under development have made phased progress: Sabin variant polio inactivated vaccine (Vero cells) has been registered for production registration; adsorbed tetanus vaccine and quadrivalent influenza virus lytic vaccine (for people aged 3 years and above) are in phase I and III clinical trials; the adsorbed acell-free 100 (component) combination vaccine has completed phase I clinical trials and phase III clinical preparations; the oral pentavalent recombinant live attenuated vaccine (Vero cells) is in phase I and phase II clinical trials; People aged 6-35 months combined with the quadrivalent influenza virus lysis vaccine were approved for clinical use, and clinical applications for quadrivalent influenza virus lysis vaccine (MDCK cells) were accepted. The company is also developing products such as quadrivalent enterovirus inactivated vaccine (Vero cells), shingles vaccine, and RSV vaccine, and the pipeline layout continues to be rich.

The international strategy continues to advance, and the PCV13 stock solution and finished products have been exported to Indonesia. The company continues to advance its internationalization strategy. At present, it has reached cooperation agreements with more than 10 overseas countries on registration, promotion, commercial sales, and technology transfer of products such as PCV13, PPSV23, live attenuated chickenpox vaccine, and quadruple vaccine in overseas markets. In April 2024, subsidiaries Minhai Biotech and AstraZeneca signed a “Memorandum of Strategic Cooperation” to jointly explore all-round cooperation in the vaccine field and help China cooperate and develop innovative vaccine products at home and abroad. In January 2024, the company signed a PCV13 “Sales Contract” with its Indonesian partner. In July, the original solution was exported, and the first batch of finished products was exported in August. This is the first time that the company has achieved overseas sales of this product, marking a breakthrough in the international strategy.

Management expenses increased significantly, and operating cash flow decreased year-on-year

In the first half of 2024, the company's gross profit was 1.007 billion yuan (-32.92%), and the gross profit margin was 83.78% (-2.97pp), mainly due to declining sales revenue and relatively fixed costs. 24H1 company sales expenses 0.397 billion yuan (-33.46%), sales expense ratio 33.02% (-1.45pct); management expenses 0.175 billion yuan (+74.84%), management expense ratio 14.55% (+8.77pct); R&D expenses 0.22 billion yuan (-10.06%), R&D expenses rate 18.32% (+4.17pct); financial expenses 0.012 billion yuan (same period last year -0.001) billion yuan), financial expense ratio 0.96% (+1.04pp). The increase in management expenses was mainly due to an increase in depreciation and amortization expenses for fixed assets and an increase in the cost of implementing employee equity incentives; the decline in sales expenses was mainly due to a decrease in sales revenue in the first half of the year and a corresponding reduction in sales service fees. The company's 24H1 net operating cash flow was 0.057 billion yuan (-83.04%), mainly due to reduced sales payments and increased expenses for purchasing raw and auxiliary materials and payment of service fees; asset impairment losses of 0.068 billion yuan (+58.19%), mainly due to a year-on-year increase in preparation for falling inventory prices.

Outlook for the second half of 2024: Sales of conventional products are expected to improve month-on-month. The company is a leading enterprise in the domestic vaccine industry. The company has a rich product layout. The first half of the year was affected by factors such as market competition and inventory reduction, and short-term performance was pressured; it is expected that in the second half of the year, as channel inventory falls to a reasonable level, the company's products are expected to improve month-on-month sales with their own advantages. As the company's newly launched product, the release of Human Diploid Mad Seedling began in 24Q2. It is expected that the pace of dosage will accelerate in the second half of the year, contributing to the increase in performance. The company has a rich research pipeline, laying a good foundation for long-term development; the international business is progressing actively. PCV13 stock solution and finished products were exported to Indonesia in July-August. Further progress is expected in the international market in the future, leading to increased performance. The company actively pays cash dividends, repurchases the company's shares, and continues to increase its holdings, showing confidence in development. We are optimistic that the company will continue to enhance investor returns and achieve long-term healthy development while maintaining high-quality development in the future.

Profit Forecasts and Investment Ratings

We expect the company's revenue for 2024-2026 to be 3.529 billion yuan, 4.216 billion yuan, and 4.860 billion yuan, respectively, up 1.5%, 19.5%, and 15.3% year-on-year, respectively. Net profit attributable to mother was 0.597 billion yuan, 0.899 billion yuan, and 1,220 million yuan, respectively, down 30.7% year on year in 2024, and increased 50.8% and 35.7% year on year from 2025 to 2026. Equivalent EPS was 0.53 yuan/share, 0.81 yuan/share, and 1.09 yuan/share, respectively. The corresponding PE was 27.3X, 18.1X and 13.4X, respectively, maintaining the purchase rating.

Risk analysis

1. The speed of release and approval falls short of expectations: The company continues to promote admission after the launch of PCV13. If subsequent admission and release progress falls short of expectations, it will affect the company's expected performance and valuation. The company's Diploid Mania will be officially launched for sale in 2024. If promotion access and sales progress in various regions fall short of expectations, it will affect the company's future expected performance.

2. Risk of product price fluctuations: Prices of listed products may fluctuate. If the price drops significantly, it will affect the company's revenue and profit expectations, which in turn affects valuation.

3. Product safety risks: Vaccines have certain safety risks due to their special biological characteristics. If a vaccine safety incident occurs, it will not only adversely affect the operation and production of the enterprise itself, but may also cause fluctuations in the vaccine industry.

4. Risk of changes in industry policies The vaccine industry is an industry with a high degree of administrative supervision, and all aspects of R&D, production, sales, and distribution are strictly supervised. In recent years, the country's supervision of the vaccine industry has been continuously strengthened, and higher requirements have been placed on vaccine companies. In an environment where regulations are becoming stricter, companies need to adjust their business strategies in a timely manner to adapt to industry policy changes and regulatory requirements in a timely manner, which may have a certain impact on performance.