Contributing to solid performance from a high base, Power Battery/Pharmaceutical announced on August 22 that 1H23 achieved revenue of 3,692 billion yuan (+24.5% yoy) and net profit of 422 million yuan (+39.5% yoy). In the context of a high base of 1H22, the company's performance continued to grow steadily, mainly due to: 1) the gradual fulfillment of in-hand/newly signed orders at the end of 2022; 2) operating efficiency benefited from the optimization of the order structure and sales expense ratio, and went to the next level (1H23 net interest rate +1.2 pct year on year). Furthermore, the number of orders in hand/newly signed at the end of the 1H23 period was 987/4.92 billion yuan respectively (new orders declined slightly year-on-year, mainly due to the decline in the share of domestic order demand in some industries plus considering the pace at which new production capacity was put in place; however, +16.0% month-on-month, mainly due to strong overseas demand in the pharmaceutical/power battery sector). We are optimistic that revenue from the pharmaceutical/power battery sector will grow steadily in '23, net interest rates will continue to be optimized, and the annual net profit yoy is expected to hit nearly 30%.
Considering the pace of domestic restoration, we expect the company's return to EPS of 0.73/0.92/1.12 from 2025 to be $0.73/0.92/1.12, giving the company 11 times PE in 23 (considering the difference in liquidity between A/H shares, 12 times the average discount compared to its A-share peer Wind), and obtain a target price of 8.73 HKD to maintain “buying”.
Biopharmaceutics: 1H23 revenue growth remains steady, and overseas demand helps 1H23 to achieve revenue of 1.32 billion yuan (+16.5% yoy). We are optimistic that this sector will maintain steady growth throughout the year. Consider: 1) The monoclonal antibody, vaccine/synthetic biology and other industries lead the way, and there are plenty of reserves for in-hand/newly signed orders (up to 1H23, about 30.6/2.03 billion yuan, of which +57% yoy. It is estimated that orders with leading domestic CXOs make an important contribution); 2) Domestic demand for biological products, blood products, vaccines, etc. ; 3) Downstream CXO/innovative drugs have gone overseas to release production capacity demand, combined with corporate fund-raising to promote overseas production capacity construction. We are optimistic about the rapid growth in demand and new orders in overseas markets in the past two years.
Power batteries are optimistic that the boom will continue to be high. Oil and gas/daily chemicals benefit from overseas phased demand to repair the power battery raw materials sector 1H23 and achieve revenue of 600 million yuan (+23.9% yoy). We are optimistic that this sector's revenue for the whole year is about 20% yoy, mainly because the company's products cross demand in the power battery industry chain, and the amount of new orders in hand and new orders is considerable (1H23 only/1,72/83 billion yuan, of which +77% yoy). 1H23 The electronic chemicals sector's revenue is +141% yoy. We expect this sector's high annual revenue increase to be mainly due to semiconductor/photovoltaic policy support+continued acceleration in high-purity reagent equipment layout. Furthermore: 1) The revenue of the chemical sector 1H23 fell 10% year on year, but considering it as the company's ballast stone business (1H23 in hand/new order of 20.6/730 million yuan), we are optimistic that its annual revenue will remain stable; 2) the oil and gas/daily chemical sector 1H23 revenue +187/ 189% yoy, which is optimistic that it will benefit from the phased expansion of overseas production capacity/recovery in demand throughout the year.
Production capacity at home and abroad is being invested in an orderly manner, and the long-term growth trajectory is steady. We are optimistic that the company's new production capacity at home and abroad will continue to expand in 2023-2024, driving the company's future growth: 1) The company expects the first phase of the new plant in Changshu to be put into operation in 4Q23, and release production capacity in a phased manner in the future (about 180 million US dollars of investment, 2 billion output value design, focusing on clean sector orders); 2) The production capacity of the Malaysian factory is expected to be gradually released in 2023-2024.
Risk warning: Liquidity risk; delays in capacity expansion for downstream customers.