With pharmaceutical and chemical technology as the core, Guobang Pharmaceutical is engaged in R&D, production and operation of animal protection APIs and key pharmaceutical intermediates based on “one system, two platforms”. Its leading products such as sodium borohydride, potassium borohydride, and fluorfenicol all rank among the highest in the world. The sales network covers all parts of the country, the US and European markets, and is highly competitive.

Intermediate sector: Production barriers are high, and the company's key pharmaceutical intermediate sector product production has high requirements for process, safety, environmental protection, etc. As one of the few domestic enterprises that can produce products such as sodium borohydride, potassium borohydride, and cyclopropylamine on a large scale, the company has a high market share, and has a high influence and stable market position in the industrial chain. Guobang Pharmaceutical's global market share in 2022 was about 45.2%, making it the world's largest producer of sodium borohydride.

API sector: Demand for macrolides is strong, and the specialty APIs sector is growing rapidly. The company is one of the main suppliers of macrolides in the world. More than 60% of azithromycin and clarithromycin are exported. The upstream supply pattern of azithromycin and clarithromycin is stable. As the main purchaser in the market, Guobang Pharmaceutical has a comparative advantage in terms of supply and price. We believe that with the implementation of the company's newly built production capacity, compounded by various positive factors on the supply and demand side, the company's macrolide API segment revenue is expected to maintain steady growth; 2024H1 has set up an independent specialty drug sector management team to coordinate R&D, registration, production, marketing and other resources, effectively improving the operating efficiency of the specialty APIs business. The main products such as moxifloxacin, tyramycin, and viglitin have all grown significantly.

Animal insurance sector: competitive landscape is fierce, and there is plenty of room for flexibility in performance

The company has a complete and extensive lineup of animal protection APIs. Currently, 16 animal protection API products have been approved domestically and have strong comprehensive competitiveness. As of September 25, 2024, the average market price of fluorophenicol was 180 yuan/kg, up 1.12% from the previous month. Considering that the company's fluphenicol production capacity continues to rise, the price has bottomed out, which is expected to provide considerable flexibility for the company's performance after the industry clears up.

Profit forecasting and valuation

Considering: (1) Intermediate sector: The company is one of the few domestic enterprises that can produce products such as sodium borohydride, potassium borohydride, and cyclopropylamine on a large scale, and the company is expected to maintain steady growth (2) Pharmaceutical raw materials:

Demand for macrolide APIs remains strong, and specialty APIs are expected to maintain a rapid growth trend; (3) Animal insurance sector: Relying on product matrix collaboration and the flexibility of flufenicol's performance, it is expected to achieve rapid growth.

We expect the company's revenue for 2024-2026 to be 5.82/6.709/7.694 billion yuan, up 8.79%/15.27%/14.69% year-on-year; net profit to mother is 0.803/0.986/1.17 billion yuan. The company will be given 15 times PE in 2025, with a target price of 26.47 yuan. First coverage, giving a “buy” rating.

Risk warning: risk of changes in industry policies, risk of product quality control, risk of price fluctuations of major raw materials, risk of fluctuations in foreign exchange rates, risk of product price recovery and falling short of expected production capacity