Key investment points

Leading blood products segment with increased profitability

The company is a blood products platform for China Resources Health Division. It has 9 varieties of 23 standard products, covering the three categories of human blood albumin, human immunoglobulin, and coagulation factors. Among them, the core product human fibrinogen has had the highest market share for many years, and the company's profit is in a leading position in the industry. In 2019-2023, the company's blood products revenue CAGR 9.0% and net profit CAGR 11.1%, maintaining steady growth. In 2021, China Resources Pharmaceutical Holdings proposed a strategic plan focusing on the main business of blood products. In 2023, the company divested some of its non-blood assets, and the net interest rate for the first three quarters of 2024 reached 33.1%, an increase of 11.5pp over the previous year.

The balance between supply and demand is expected to drive the rapid development of the industry

Due to the special nature of blood product resources, the industry has been in short supply/tight balance for a long time. The size of the Chinese market will exceed 50 billion yuan in 2023, and is expected to grow to 95 billion yuan in 2030, with a CAGR of 9.6%, which is significantly higher than the global level. China's penetration rate is less than 1/4 of developed countries such as the US, and there is still plenty of room for improvement. In the medium to long term, on the supply side, as the “14th Five-Year Plan” plans are implemented one after another in various regions and the country strengthens industrial support, the number of single plasma collection stations in China is expected to increase, and the amount of plasma collection is expected to continue to rise; on the demand side, as the number of patients diagnosed and treated increases due to aging, the spread of clinical applications, and the expansion of medical insurance payments, the demand for blood products is expected to increase.

endogenous epitaxial two-wheel drive

New pulp stations+new products drive endogenous growth. The company proposed to strive to double the number of pulping stations and the scale of pulping in the 14th Five-Year Plan. Currently, the company has 16 pulp stations, and the 2024Q1-3 pulping capacity is 387 tons (yoy +12%). Empowered by China Resources central enterprises, the company's pulping capacity is expected to continue to increase. In 2020-2022, the company was successively approved for human prothrombin complex and human coagulation factor VIII. Fourth-generation isoproterol is being applied for marketing, and the number of new products launched is expected to contribute to the increase in performance. At the same time, epitaxial mergers and acquisitions are expanding the scale of the business. The company has announced that it plans to acquire Green Cross. In 2023, Green Cross has 4 pulp stations in China, with a pulping capacity of 104 tons. The two sides complement each other's regional layout, yield, and brand advantages; the related party Danxia Biotech is expected to integrate.

The leading blood system segment has the highest profit margin. Without considering the acquisition of Green Cross, we expect the company's 2024-2026 operating income to be 1.796/1.976/2.178 billion yuan, respectively, with year-on-year growth rates of -32.29%/10.03%/10.26%, respectively, and net profit to mother of 0.534/0.592/0.662 billion yuan, respectively, with year-on-year growth rates of 124.87%/10.94%/11.66%, respectively. EPS was 1.06/1.17/1.31 yuan respectively, and the 3-year CAGR was 40.71%.

Given that the company is a leader in the blood products segment, tons of plasma profits are in the leading position in the industry, covered for the first time, and given a “buy” rating.

Risk warning: risk of insufficient supply of raw materials, risk of new product development, risk of product quality control, risk of pharmaceutical policy, risk of impairment of goodwill