Investment advice

The company announced its 2020 results: revenue of 3,295 million yuan, an increase of 1.17% over the previous year; Guimu's net loss was 270 million yuan, down 137.57% from the previous year, corresponding to a loss of 0.29 yuan per share. The main reason was the suspension of Combusip Overseas 3 clinical trials and related development expenses included in current profit and loss.

The performance fell short of our expectations. At the same time, the company announced results for the first quarter of 2021: revenue of 915 million yuan, an increase of 44.54% over the previous year, and net profit of the mother was 234 million yuan, an increase of 32.29% over the previous year, slightly exceeding expectations due to the weak impact of the epidemic and the recovery of performance. Considering that overseas clinical failures have had a certain impact on the company's long-term development, we downgraded the rating to “neutral”.

The reasons are as follows:

The 2020 results fell short of expectations. The main reasons are: 1) Combusip's global clinical trials ceased. According to accounting standards, the cumulative capitalization expenditure of 1.39 billion yuan up to the end of 2020 was transferred to current profit and loss, corresponding reduction of operating profit of 1.40 billion yuan, reduction of income tax fee of 380 million yuan, and reduction of net profit of 1.01 billion yuan; 2) In the patent technology transfer and usage fee litigation case, the company signed a mediation agreement with the plaintiff and made a one-time payment of 268 million yuan, thereby reducing operating profit by 110 million yuan in 2020 and reducing net profit by 93.71 million yuan

Compathep overseas phase 3 clinical trials were discontinued, mainly affected by the epidemic. In May 2018, the company initiated a global multi-center phase 3 clinical study to evaluate the efficacy and safety of Composip in treating patients with neovascular age-related macular degeneration (PANDA trial).

In September 2020, the PANDA study completed week 36 of its main endpoint visits. The impact of the global COVID-19 outbreak in early 2020 greatly exceeded expectations on the company's research. As a result of factors such as: 1) the number of cases that fully met the PANDA administration plan fell to less than 40% of the enrolled cases due to factors such as the introduction of control measures in various countries, and 2) international shipping and travel restrictions had a certain impact on the quality of test drugs that required cold chain transportation throughout the process, resulting in the vision change of more than half of the subjects compared to the baseline after injection. Based on current data, the company decided to stop the PANDA test. Currently, the company's analysis and investigation of the PANDA test is still ongoing, and it said that it will continue to communicate with regulators in various countries, and we will continue to monitor subsequent developments;

Domestic performance is gradually recovering. See page 3 for full details

What's the biggest difference between us and the market? We believe that the blocking of Compathep's internationalization may have a longer-term impact on the company.

Potential catalyst: Comperside's domestic sales may be affected to a certain extent.

Profit forecasting and valuation

Considering that overseas clinical failure has had a certain impact on the company's long-term development, we lowered the 2021 EPS by 19% to 0.86 yuan, and introduced the 2022 EPS of 1.01 yuan. The current stock price corresponds to a price-earnings ratio of 24/21 times 2021/2022. The rating was downgraded to a neutral rating. Due to the impact of overseas market expectations, we lowered our target price by 56% to 24 yuan, corresponding to the price-earnings ratio of 28/24 times 2021/2022, which is 14.8% higher than the current stock price.

risks

The domestic release of Compathep continues to exceed expectations; overseas clinical trials have resumed.