Core views

In the first half of 2024, the company's main product, the MCV series, continued to expand, and sales revenue increased significantly year-on-year, driving performance improvement; the company continued to strengthen cost control and improve operating efficiency. Combined with the elimination of adverse factors affecting the profit side during the same period last year, losses were drastically reduced in the first half of the year, and the business situation continued to improve. The MCV series is expected to maintain a volume pace in the second half of the year, continuing to drive performance growth and profitability improvement; various expense ratios are expected to continue to decrease, driving losses to continue to narrow. The company PCV13i is in the listing application stage. The subsequent R&D pipeline is rich, development momentum is strong, and commercialization prospects are promising.

occurrences

The company released its 2024 semi-annual report, and the results were in line with expectations

On August 29, the company announced its 2024 semi-annual results announcement, achieving: 1) operating income of 0.285 billion yuan, up 1253.6% year on year; 2) net profit to mother of 0.225 billion yuan, loss decreased by 73.22% year on year; 3) net profit without return to mother - 0.254 billion yuan, loss decreased by 71.50% year on year. The performance was in line with expectations.

Brief review

The volume of main products led to a significant increase in revenue in the first half of the year. Losses narrowed sharply in 2024Q2, and the company's operating income was 0.171 billion yuan (-0.079 billion yuan in the same period last year); net profit to mother was 0.055 billion yuan, loss decreased by 92.12% year on year; after deducting non-return net profit of -0.076 billion yuan, loss decreased by 89.38% year on year. The revenue side of 24Q2 and 24H1 companies increased significantly, mainly due to: 1) the impact of estimated COVID-19 vaccine returns in the same period last year, which reduced revenue by 0.237 billion yuan; 2) the company's influenza vaccine sales increased steadily year-on-year in the first half of the year, and the CDMO business contributed to increased performance.

Losses improved sharply year over year, mainly due to: 1) the large scale of fixed costs included in operating costs corresponding to redundant production capacity in the same period last year, and the scale of calculation was drastically reduced in the first half of this year; 2) the scale of asset impairment losses accrued in the same period last year was large; 3) the company's cost control and operating efficiency improved significantly.

MCV series sales increased further, driving performance growth. The company continued to promote the promotion and market introduction of its main products MCV2 and MCV4 in the first half of the year. In the first half of the year, MCV series products achieved sales revenue of 0.263 billion yuan, an increase of 18.00% over the previous year, driving performance growth. MCV4 is currently undergoing clinical trials for children and adults aged 4 and above, and the target population is expected to expand further in the future. At the same time, the company increased its CDMO business and other service work. In the first half of the year, it confirmed CDMO revenue of 0.023 billion yuan, and confirmed other business revenue of 0.018 billion yuan through the sale of raw materials and technical services, achieving a COVID-19 vaccine sales revenue of 0.0923 million yuan.

The R&D pipeline continues to advance, and PCV13 is in the listing application stage. The company has a leading next-generation vaccine R&D and production technology platform, and has a rich R&D pipeline layout. The 13-valent pneumonia-conjugate vaccine PCV13i under development by the company has submitted a marketing application and was accepted in February 2024. Follow-up work is being carried out in an orderly manner. The adsorbed tetanus vaccine has completed enrollment and vaccination of the phase III clinical trial; the infant component dTCP is in phase III clinical trials and has completed the first three basic immunizations for subjects; Tdcp for adolescents and adults is in phase I clinical trials and clinical site work has been completed; the recombinant pneumococcal protein vaccine PBPV has obtained positive initial phase I clinical results, and the next phase of R&D is being evaluated and planned; the recombinant herpes zoster vaccine is ongoing in phase I clinical trials in Canada; recombinant polio Phase I clinical trials of the vaccine are ongoing in Australia. A rich pipeline of ongoing research provides a strong impetus for the company's subsequent performance growth, which is conducive to future long-term development.

Overseas business continues to gain strength to promote MCV4 overseas work. In the past, the company has accumulated valuable overseas entry experience through overseas commercialization of COVID-19 vaccines. It is currently carrying out overseas work for MCV4, mainly targeting Southeast Asia, the Middle East, North Africa, and South America to promote registration and commercialization work. It will also simultaneously establish long-term and good strategic cooperative relationships with partners in conjunction with future overseas development goals for PCV13 and the component 100 vaccine combination.

At the same time, depending on product positioning and R&D progress, the company will also carry out preliminary preparation and planning work in the direction of WHO PQ certification to explore the feasibility of purchasing products by international organizations; it will also actively explore the feasibility of global innovative products entering developed countries.

Gross margin and various expense ratios improved dramatically, and asset impairment drastically reduced 2024H1's gross profit by 0.212 billion (-0.062 billion in the same period last year), and the gross profit margin ratio was 69.86% (+307.45pp), mainly due to the decline in COVID-19 vaccine revenue during the same period last year, when the return of COVID-19 vaccines reduced revenue and costs, and fixed costs corresponding to redundant production capacity were included in operating costs, leading to a low gross margin base. 24H1 has sales expenses of 0.112 billion yuan (-12.70%), management expenses 0.084 billion yuan (-38.45%), R&D expenses 0.186 billion yuan (-45.06%), and financial expenses of -0.021 billion yuan (-0.059 billion yuan in the same period last year). Sales, management, R&D, and financial expenses were 37.07% (-460.19pct), 27.52% (-496.10pct), 61.27% (-1244.68pct), and -7.01% (+221.09pct), respectively. As the company increased its cost control efforts and operating efficiency continued to improve, all expenses showed a significant decline, and the cost rate level improved significantly over the same period last year.

The net cash flow from 2024H1's operating activities was 0.214 billion yuan (-0.737 billion yuan for the same period last year), mainly due to an increase in the company's sales repayments and a decrease in raw material procurement and labor expenses; asset impairment losses of 0.014 billion yuan (-98.02%), mainly due to the large amount of preparation for impairment of various assets calculated in the same period last year.

As of the end of 24H1, accounts receivable were $0.578 billion (-33.92%), mainly due to continued increase in sales payments.

Outlook for the second half of 2024: The MCV series maintains a volume pace, and losses are expected to continue to narrow in the first half of 2024. The company's MCV series products will continue to be sold, and sales revenue will increase significantly year-on-year, driving the company's performance improvement; as the company continues to strengthen cost control and improve operating efficiency, compounded by the unfavorable factors affecting the profit side during the same period last year, the company has achieved significant loss reduction and continuous improvement in business conditions. We believe that in the second half of the year, as the company's sales and promotion work continues to achieve results, the MCV series will maintain a volume pace and continue to drive the company's revenue growth and profitability; various expense ratios are expected to continue to decrease, driving losses to continue to narrow. The company's major product, PCV13i, is in the marketing application stage, and various products under development, such as dTCP for infants, tetanus vaccine, and PBPV, are in the clinical stage. Subsequent smooth progress will help the company grow in the long term, and commercialization prospects are promising.

Profit Forecasts and Investment Ratings

Without considering the COVID-19 vaccine profit forecast, we expect the company to achieve operating income of 0.909 billion yuan, 1.279 billion yuan and 1,413 billion yuan respectively from 2024 to 2026, and net profit to mother of -0.346 billion yuan, 0.012 billion yuan and 119 million yuan respectively. The loss in 2024 is expected to decrease by 76.65% year on year, and is expected to turn loss into profit in 2025, increasing 865.9% year on year in 2026, equivalent to EPS of -1.40, respectively Yuan/share, 0.05 yuan/share, and 0.48 yuan/share. The purchase rating is maintained by comprehensively considering the progress of the company's R&D pipeline and its commercialization value.

Risk analysis

1. Product sales fall short of expectations: The company's main product is the MCV series. If the sales progress in 2024 falls short of expectations, it will affect the company's future revenue and profit expectations, which in turn will affect the company's valuation.

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. The progress of new product marketing is lower than expected: The company currently has multiple vaccine research and development pipelines. If the progress of the new product launch falls short of expectations, it may affect the company's future revenue and profit expectations, causing the company to turn a loss into a profit and delay or even unable to reverse the loss, which in turn affects the company's valuation.