Core views

As a leading enterprise in the vaccine industry, the company was affected by marketing efforts falling short of expectations in the first three quarters, and product sales growth faced some pressure. As the company continues to strengthen its sales team and marketing network, increase publicity and promotion efforts, and increase public awareness of vaccination, the shingles vaccine is expected to usher in a trend of dosage and help improve performance from month to month; the HPV vaccine sinks and the vaccination rate in the market is expected to gradually increase, and new performance increases after the male indications are approved. The company's independent R&D pipeline continues to advance, and various products are submitted for listing, which will help the company's long-term development in the future.

occurrences

The company released its 2024 three-quarter report, and the performance fell short of expectations

On October 25, the company released its report for the third quarter of 2024. The first three quarters achieved: 1) operating income of 22.786 billion yuan, a year-on-year decrease of 41.98%; 2) net profit of 2.151 billion yuan, a year-on-year decrease of 67.07%; 3) net profit without return to mother of 2.143 billion yuan, a year-on-year decrease of 66.41%; 4) basic earnings per share of 0.90 yuan. The results fell short of previous expectations.

Brief review

Sales were under pressure in the first three quarters. Expense growth and credit impairment affected profit performance

In the third quarter of 2024, the company's revenue was 4.528 billion yuan, down 69.46% year on year; net profit to mother was -0.084 billion yuan, down 103.69% year on year; net profit not attributable to mother was -0.087 billion yuan, down 104.03% year on year. The company's performance in 24Q3 and the first three quarters fell short of expectations, mainly due to: 1) the marketing work did not meet expectations, and sales volume of major products declined year on year; 2) the company continued to increase sales expenses and personnel investment, and sales and management expenses increased year on year; 3) the year-on-year increase in credit impairment losses. Among them, 24Q3 accrued credit impairment losses of 0.208 billion, which had an adverse impact on the profit side of the quarter.

Product sales are under pressure in the short term, and we look forward to further growth. The company's sales revenue declined year-on-year in the first three quarters, mainly due to: 1) the HPV vaccination rate reached a high level, making marketing more difficult; 2) domestic people were less willing to get vaccinated against shingles, and early marketing efforts were insufficient; 3) children's vaccine products were affected by the number of newborns, and sales were under pressure in the short term. In terms of the HPV vaccine, the company maintains a leading market share and continues to increase the vaccination rate in the declining market; the male indication for the HPV vaccine is in the marketing application stage, and it is expected to contribute to increased performance after approval in the future. In terms of the shingles vaccine, the company continues to strengthen the sales team and marketing network, increase publicity and promotion efforts, and the number of sales personnel and terminal coverage continues to increase. It is expected that as the company strengthens sales promotion and increases public awareness about vaccination, the shingles vaccine is expected to usher in a trend of dosage and help improve performance month-on-month. In terms of independent products, MicroCard and Yika, as the company's tuberculosis product matrix, are expected to have a synergistic effect and help grow revenue from independent products.

The independent R&D pipeline continues to advance, and various products have been submitted for listing. The company continues to strengthen its independent R&D capabilities and accelerate the R&D pipeline. From September to October 2024, the company's application for production registration for quadrivalent influenza virus lysis vaccine (pediatric type), trivalent influenza virus lysis vaccine, and freeze-dried human diploid rabies vaccine was accepted; multiple pipelines such as PCV15, Vero cell rabies vaccine, MCV4, and quadrivalent norovirus vaccines are in clinical phase II I.

The quadrivalent influenza virus lysis vaccine (ZFA02 adjuvant) obtained clinical approval. As the R&D pipeline is gradually approved for listing in the future, the company is expected to gain long-term growth momentum.

Revenue restructuring affected 24H1 gross profit margin. The size of accounts receivable decreased in the first three quarters of 2024, and the company's gross profit margin was 27.23% (-1.04pct). The decline in gross margin was mainly due to an increase in the share of revenue from the 9-valent HPV vaccine and changes in the revenue structure. In terms of expenses, the company's sales expenses for the first three quarters were 1.936 billion yuan (+4.95%), sales expense ratio 8.50% (+3.80pct); management expenses 0.307 billion yuan (+12.23%), management expense ratio 1.35% (+0.65pct); R&D expenses 0.696 billion yuan (+7.25%), R&D expenses ratio 3.05% (+1.40pct); financial expenses 0.054 billion yuan (+54.25%), financial expenses ratio 0.24% (+0.15pct) Management expenses increased significantly, mainly due to the company's sales staff expansion in the first half of the year to strengthen sales of the shingles vaccine. Sales and R&D expenses all increased year over year, and combined revenue declined year on year, leading to a marked increase in the cost ratio.

The company's net operating cash flow in the first three quarters was $-3.065 billion, a year-on-year decrease of 218.53%, mainly due to a decrease in sales payments and an increase in payment payments; accounts receivable of 21.392 billion yuan, a year-on-year decrease of 25.27%, a decrease of 20.94% from the end of 2023, mainly due to a decline in product sales. Credit impairment losses amounted to $0.605 billion, up 6.56% year over year, mainly due to increased preparation for bad debts. Inventory was 20.693 billion yuan, up 113.27% year on year, mainly due to planned procurement of agency products.

Looking forward to subsequent product sales improvements, the R&D pipeline will continue to advance to help the long-term development of the company as a leading enterprise in the vaccine industry. Under the complex market environment and fierce competition pattern in the first three quarters, product sales growth faced some pressure. As the company continues to strengthen its sales team and marketing network, increase publicity and promotion efforts, and increase public awareness of vaccination, the shingles vaccine is expected to usher in a trend of dosage and help improve performance from month to month; the HPV vaccine sinks, the vaccination rate in the market is expected to gradually increase, and it will bring about a new increase in performance after the approval of male indications. The company's independent R&D pipeline continues to advance, and various products are submitted for listing, which will help the company's long-term development in the future.

Profit Forecasts and Investment Ratings

Without considering the COVID-19 vaccine profit forecast, we expect the company's revenue from 2024 to 2026 to be 29.198 billion yuan, 33.49 billion yuan, and 36.876 billion yuan, respectively, and net profit to mother of 3.035 billion yuan, 4.18 billion yuan, and 5.571 billion yuan respectively. The year-on-year decrease in 2024 is 62.4% year-on-year, and the year-on-year increase of 37.7% and 33.3% respectively from 2025 to 2026, which is equivalent to 1.27 yuan/share and 1.75 billion yuan respectively Yuan/share and 2.33 yuan/share, corresponding PE are 25.5X, 18.5X, and 13.9X, respectively, maintaining the purchase rating.

Risk analysis

1. Risk of execution of agency agreements: The company's revenue mainly comes from agency products. If the other party to the agreement cannot provide products as contracted and the company fails to complete the target amount as agreed, it will pose a certain risk to the company's future profits; 2. Risk of industry policy changes: Vaccine companies have strict policies, regulations and restrictions from vaccine research and development, production to sales. Policy changes may cause the company to face new competitive pressure or risks and affect business development; failure in product development and registration: product development is critical to the future development of vaccine companies, and research and development fails in the research pipeline Or product registration failure may affect the company's future sales expectations, which in turn affects valuation;

4. Vaccine management compliance risks: Because vaccines have special biological characteristics, their regulatory requirements are stricter and the scope of management is broader. If an enterprise violates operating compliance requirements, it will not only adversely affect the operation and production of the enterprise itself, but may also cause fluctuations in the vaccine industry.