The demand side of the blood products industry continues to expand, while supply-side resources are limited, and the competitive pattern of the industry is good.

Currently, the two largest varieties of blood products are albumin and jingacrylic. Among them, domestic terminal sales of albumin have exceeded 32 billion yuan, while consumption has increased rapidly due to the epidemic, and terminal sales have exceeded 14 billion yuan. In terms of supply, although the overall approval rate of China's pulp stations accelerated during the 14th Five-Year Plan period, it is still lower than the growth on the demand side of blood products. Overall, supply and demand are still in a tight balance, the industry competition pattern is relatively good, and the track value is high.

Liberal Arts Biotech's business indicators are at the top of the industry, and the return on investment is high. In terms of pulp harvesting, Boya Biotech originally had 16 pulp stations to harvest 386 tons of pulp from January to September 2024. It is expected to exceed 520 tons throughout the year, and the endogenous growth in pulp collection is steady. Liberal Arts Biotech currently has 9 drug registration certificates for blood products. Its revenue and net profit are at the top of the industry. This is due to the company's high utilization rate of plasma, and the yield of major products is at the leading level. In particular, the extraction capacity of human fibrin protein is over 1,400 bottles/ton, far exceeding the industry average. In addition, the company is accelerating research and development of new products, including 10% static acrylic, C1 esterase inhibitors, vWF factor, etc., and the company's net profit per ton of slurry is expected to increase further in the future.

Liberal Arts Biotech acquires Green Cross (Hong Kong). Future growth is certain, and the return on net assets is expected to increase significantly. In July 2024, the company announced that it would collect 1.82 billion cash to purchase Green Cross (Hong Kong) and indirectly hold 100% of Green Cross (China). Currently, Green Cross has four pulp stations, with a pulping volume of 104 tons in 2023, and drug registration certificates for 6 types of blood products. There is still room for further exploration of pulp collection potential and production capacity. After Liberal Arts enters the market, it is expected that it will use its industry advantages to strengthen the production and operation management of Green Cross (China), increase the amount of pulp collected, and improve the product production process, leading to a significant increase in the net profit of Green Cross (China).

Profit forecast and investment advice: The company is a high-quality enterprise in the blood products industry. It is backed by the central enterprise China Resources Group and has high operating efficiency. After the acquisition of Green Cross (Hong Kong) was implemented, the layout of the blood products industry was further expanded, and future growth is expected to accelerate further. We expect the company's revenue for blood products in 2024-2026 to be 1.906/2.172/2.436 billion, net profit to mother of 0.516/0.577/0.651 billion, EPS is 1.02/1.14/1.29 yuan, corresponding to the current market value PE is 30/27/24 times, with a net market ratio of 2.02/1.90/1.78. Considering that the market capacity of major products in the blood products industry continues to grow, and the supply side is still limited. We use an absolute valuation method to give the company “buy” In the “rating”, the target price is 38.45 yuan.

Risk warning: Pulp harvesting growth falls short of expectations, terminal price reduction, R&D progress falls short of expectations, etc.