Report guide

The company's short-and medium-term results are vulnerable to fluctuations in the delivery of API orders, the pace of domestic volume purchases and the sales of stock varieties in the United States. we suggest leveling out the annual growth rate and focusing on new increments, new momentum, and the pace of FDA review in the United States.

Main points of investment

Performance: high growth in 2020, fluctuating 2021Q1 growth events: the company released its 2020 annual report and 2021Q1 results, showing an increase of 20.4% in revenue, 63.2% in year-on-year net profit, 4.7% in 2021Q1, 15.6% in net profit, and 24% in non-return net profit.

Annual report 2020: based on the cost-quality advantage of API, domestic and foreign integration is promoted rapidly. 1 domestic preparation: scale effect is reflected, integration advantage is magnified, and the performance is high under the collection mode.

In 2020, 2.07 billion yuan (yoy+45.1%), including losartan potassium tablets and irbesartan hydrochlorothiazide tablets, the annual sales of losartan potassium tablets and irbesartan hydrochlorothiazide tablets exceeded 500 million yuan, and the annual preparation sales volume was 8.6 billion, achieving 9 new products on the market and zero breakthrough in ointment application and production. We analyzed the echelon of the company's generic drug products, and estimated that among the varieties that contributed to the income, the collected varieties accounted for a relatively high proportion. In the case of national collection and price reduction, the gross profit margin of the company's domestic preparation business reached 84.5% in 2020 (an increase of 2.1pct compared with the same period last year). We believe that this is partly due to the cost advantage under integration and partly from the amplification of manufacturing advantages under scale effect ("the processing fee for ten thousand pieces of naked film is reduced by 2%, and the efficiency of packaging production is increased by 8%"). We are concerned about the performance of the company in winning the bid and increasing the volume. It is optimistic that under the competition of the domestic generic drug market, the penetration of some kinds of generic drugs will accelerate the profit improvement space of the leading companies in the dividend period.

2 American preparation: internationalization is accelerated, pay attention to the progress of FDA review. In 2020, 1.03 billion yuan (yoy-11.2%), we believe that the pressure on the growth of preparations in the United States is partly due to the ban on the export of FDA APIs; we are concerned that the company said in the annual report that it "actively distributes markets in Southeast Asia, the Middle East and North Africa, completes the submission of nine product registration documents in five countries and regions, including Vietnam and Cambodia," and "promotes the construction of an European registration platform in an orderly manner". We believe that the company will promote the forward integration of large tonnage API varieties with advantages in cost and quality, which will help to further magnify the company's global manufacturing advantages in the field of generic drugs. we pay attention to the establishment of the company's overseas sales system and the richness of the echelon of generic drug products.

3API: pay attention to new varieties and new increments. In 2020, the income is about 3.1 billion yuan (yoy+20%), and the corresponding gross profit margin is about 55% (down from the same period last year). In terms of varieties, the sales revenue of losartan potassium, irbesartan and valsartan increased by about 139% compared with the same period last year, and the sales of APIs in the Asian, African and Latin American markets increased by about 76% compared with the same period last year. In terms of sales volume, in 2020, the sales of sartan APIs increased by 27.3% compared with the same period last year, Pril increased by 18.4%, and the nervous system increased by 17.3% over the same period last year. We believe that in terms of revenue, the company has been in the forefront of global API companies; from the perspective of international registration, variety echelon and GMP/EHS management, the company is still the domestic API leader. According to the company's annual report, "146 external audits were successfully passed in the whole year, including 30 official audits". The number of audits accepted by the company shows that the company's API business still has competitiveness and growth potential under the influence of FDA review, and we pay attention to the new varieties and increments of the company's API business.

New increment: pay attention to winning the bid for domestic collection, FDA inspection and the landing of new varieties of API 1 domestic preparations: according to the company's annual report, the national medical institutions purchased about 660,000 voriconazole tablets and 5200 million valsartan tablets in 2020. We are optimistic that the company will continue to release the winning varieties in the second half of 2020, contribute new increments to the winning varieties (voriconazole tablets) in the first half of 2021, and are expected to participate in the collection in the middle of 2021 (such as aripiprazole tablets, Rivashaban tablets and other companies have reported consistency evaluation varieties) to contribute to the growth rate in the second half of this year and next year.

2 American preparation: according to the company's annual report, in 2020, a total of 2 preparation products were approved by FDA, the ANDA declaration of 5 products was completed, and another 36 projects under research were carried out in an orderly manner. We are concerned about the progress of FDA inspection and are optimistic about the expansion space of US preparation export.

3 API: in 2020, the company approved 2 APIs through domestic review, and 8 new registrations in mainstream countries (including FDA1, CEP2, 5 in China). We believe that compliance capacity, international registration and GMP/EHS management are important competitiveness of API companies, and we are optimistic about new varieties and new increments of the company.

New momentum: the innovation pipeline continues to advance, and the R & D expense rate is expected to increase. According to the company's 2020 annual report, "9 clinical approvals including the world's first dual-target antineoplastic drugs (HB0025) were obtained; phase I clinical trials of 2 monoclonal antibody innovative drugs (HOT1030 and HB0017) were successfully launched; and 4 new biological drug studies were launched". In terms of innovative drugs, "completed the establishment of 2 new products". We expect that the rate of R & D spending may increase in 2021, but it will provide room for the company's long-term development.

Profit forecast and valuation

Taking into account the pace of winning the bid for the company's volume procurement, the incremental space for new varieties of API, the upward flexibility in 2022 after the lifting of the US export ban, and the investment income brought by equity investment, regardless of the profit contribution of winning the bid for the fifth round of national collection in 2021, we expect the company's net profit to increase by 34.8% and 28.9% from 2021 to 2022 compared with the same period last year. Considering that the company has just released the equity incentive plan, we expect the company's EPS to be 0.77,0.99 and 1.25 yuan per share respectively from 2021 to 2023. If the number of varieties that win the bid in the second round of collection in 2021 increases or the speed of FDA review in the United States is as fast as expected, the company's profit growth in 2022-2023 is expected to exceed our expectations and maintain the "overweight" rating.

Risk hint

The risk of collecting the standard of core varieties; the risk that the progress of FDA inspection is slower than expected; the risk that overseas litigation compensation is higher than expected; the risk of performance volatility caused by export foreign exchange locking; the risk of production quality management, and so on.