2023 revenue and core profit are in line with our expectations
The company announced its 2023 results: revenue of 6.61 billion yuan, +4.5% year on year; net profit to mother of 715 million yuan, -23.2% year over year (mainly due to changes in fair value of financial assets held); we estimate core net profit of 70 million yuan, +3.6% year over year. Revenue and core net profit are in line with our expectations.
Development trends
New pressure must come under pressure, and the share of innovative drug revenue has risen to 72%. Innovative drug revenue in 2023 was +15% year-on-year, increasing its share to 72%. 1) First and foremost: The company said the number of admissions reached 3,800, with a market share of 20%. Sales volume was +25% year-on-year in 2023. Affected by price cuts in health insurance negotiations, sales volume was -13% year over year. The marketing application for new sublingual tablets was accepted by the State Drug Administration in June 2023. The company expects the total peak sales of the two dosage forms to reach 5.5 billion yuan. 2) Xianoxin: The company said it had a market share of 23% in 2023, ranking first in domestic production. 3) Cosella achieved sales of nearly 100 million yuan, and was successively approved for first-line regular use and real estate in Hainan in 2H23. The company expects sales of this product to peak at 1 billion yuan (excluding other indications such as TNBC). The company said that the 1Q24 terminal recovery trend is good, leading to a 10-15% year-on-year increase in overall revenue in 2024, an increase in net operating profit of about 30%, and a return of gross margin to about 80%; in the future, R&D expenses may stabilize at around 20%, and sales expenses will stabilize. Furthermore, the company stated that it has accumulated dividends of more than 1.2 billion yuan since its IPO (dividend rate of about 60% in 2023), and indicates that it will maintain a dividend rate of 30-60% in the future; the company also recently announced that it will raise the maximum share repurchase amount from 500 million yuan to 1 billion yuan.
It has been implemented one after another in the research pipeline, and innovation is expected to drive growth. Since 2023, the company introduced Enritol (1Q23 CRC marketing application was accepted by the State Drug Administration. The company is expected to become the first cetuximab EGFR monoclonal to be marketed in China, with a peak sales value of 15-20 billion yuan), ADC189 (an anti-influenza drug with BIC potential, the company expects to submit a marketing application in 2024), and ledecibizumab (specific dermatitis clinical trials have been completed). The marketing application for Enzeshu (sulvicitamab) was accepted in February 2024. The company expects Dali Thunder (insomnia medicine) to submit a marketing application in 3Q24. The high-potential molecule SIM 0500 (targeting GPRC5D/BCMA/CD3, multiple myeloma) received FDA clinical approval. The company expects to receive approval for Enritol (1L metastatic colorectal cancer), phenoxin (routine COVID-19 approval), and Xianbishin sublingual tablets (acute cerebral infarction) within 2024, and expects to approve 5 innovative drugs in the next 2 years. Furthermore, in February 2024, the company announced that Xiansheng Zaiming, a subsidiary focusing on the oncology business, had completed 970 million yuan in financing and introduced external investors such as SDIC Investment Promotion.
Profit forecasting and valuation
We keep our 2024/25 core profit forecast unchanged, and the current stock price corresponds to the 2024/25 price-earnings ratio of 14/11 times. We maintain our outperforming industry rating and target price of HK$7.7, corresponding to a price-earnings ratio of 20/15 times in 2024/25, with 40% room to rise from the current stock price.
risks
R&D has failed, the competitive landscape has deteriorated, price reductions in health insurance negotiations have exceeded expectations, and internationalization has fallen short of expectations.