Key points of investment

GLP-1 drug sales and development are booming, driving the expansion of the industrial chain: the number of obese patients is growing rapidly. The number of obese people in China was 0.22 billion in 2020, and demand for diet pills is strong. Sales and development of GLP-1 polypeptide weight loss drugs, represented by simeglutide and tirpotide, are booming, driving a large number of companies to establish R&D pipelines. On the other hand, many major peptide drugs with patents that are about to expire provide opportunities for generic peptide companies, while driving a surge in demand for APIs, and the entire industry chain is booming. However, peptide drug synthesis is complex and large-scale production barriers are high, so API and CDMO companies with strong R&D capabilities and first-mover advantages will benefit.

The company has been deeply involved in the field of peptides for many years and has a first-mover advantage: 1) Leading domestic review progress for the company's peptide products: as of July 2024, there are only 5 companies registered to review simeglutide/liraglutide. The company is one of the five, leading in progress; 2) It has large-scale production capacity:

The company is the only enterprise with large bag packaging specifications. It has achieved a single batch yield of more than 10 kg, with high product purity and low cost, highlighting its technological leadership; 3) Build sufficient peptide production capacity: the company expects to complete the construction of 601 and 602 workshops from the end of 2024 to the first quarter of 2025, and the production capacity of peptide APIs will reach several tons by the end of 2025. According to our estimates, the corresponding revenue is more than 4 billion yuan; 4) The company has a rich pipeline of peptides: covering many well-known varieties of peptides, and expanding the development of downstream formulations and new drugs 1 single Targeted and multi-target hypoglycemic diet drugs; 5) Ongoing orders to catalyze performance release: Using the experience of selling polypeptide APIs to overseas markets such as the US, Europe, India, and the Middle East, it has signed a number of active ingredient drug and CDMO projects such as simeglutide injections, oral agents, GLP-1 innovative drugs, etc., and the company is expected to efficiently complete cooperation projects and realize the benefits.

Independent choice+customized service, two-wheel drive, stable performance: 1) The company has a rich pipeline of small-molecule chemicals, and olmesartan amlodipine tablets have entered the ninth batch of collection. It is expected to become a growth point for the company's performance after the collection is completed in 2024; 2) The oligonucleotide market is developing rapidly, and the global market is expected to reach 8.6 billion US dollars in 2024. The company took the lead in building an oligonucleotide R&D platform, and its subsidiaries, Nootenol and GMP pilot production lines were successfully put into operation. Along with the launch of small nucleic acid drugs, it is expected to become the company's second growth curve; 3) The CDMO project serves global pharmaceutical companies, covering all stages of innovative drug development to commercialization, and has added multiple peptide CDMO orders to guarantee the basic performance market.

Profit forecast and investment rating: We expect the company's total revenue for 2024-2026 to be 1.64/2.33/3.08 billion yuan, respectively, with year-on-year growth rates of 58%/42%/32%, respectively; net profit to mother is 0.43/0.56/0.71 billion yuan, respectively, with year-on-year growth rates of 164%/29%/27%. The 2024-2026 P/E valuation was 29/23/18X, respectively; based on the company's 1) rapid release of peptide APIs, and new production capacity will soon be put into operation; 2) integrated development of API formulations, business expansion downstream, and standard collection of barefoot olmesartan ester amlodipine tablets is expected to contribute to increased performance; 3) Actively developing the CDMO business, with the advantages of peptide and oligonucleotide R&D platforms; first coverage, giving a “buy” rating.

Risk warning: Risk of worsening competition, risk of downstream demand falling short of expectations, geopolitical risk, risk of production capacity falling short of expectations.