2023 results fall short of our expectations
The company announced 2023 results: revenue/revenue calculated entirely based on drug sales revenue was 800/9.5 billion yuan, respectively, -12%/-10% compared with the same period last year. Net profit attributable to mother and adjusted net profit to mother were $24/27 billion, respectively, -26%/-19% YoY. Due to the impact of the implementation of the 7/8th batch of pharmaceuticals, the 2023 results fell short of our expectations.
Development trends
The Dailixin/Boeidin/Yousifer collection is under pressure. By product line in 2023, cardiovascular revenue was -9%, digestive income -15%, skin and aesthetic revenue +20%, ophthalmology revenue +15%, and other product revenue -32% year-on-year. The company said that Dailixin was affected by the execution of the seventh batch of national procurement, and Boeiding and Yousifer were affected by the execution of the eighth batch of national procurement. The total sales of the three products fell by about 1.71 billion yuan year on year. Revenue for the second half of the year was -50% year over year, and the decline exceeded management's previous expectations. The company said that the total revenue from other uncollected products increased by about 1 billion yuan over the same period last year. Furthermore, due to relatively fixed expenses such as sales team salaries and increased R&D investment, profit declined more than revenue in 2023. The company determined that the three collected products, 1H24, may continue to face downward pressure of 1 to 1.2 billion yuan month-on-month; in 2024, revenue from non-collected stock products increased by more than double digits year-on-year. The company expects 2024 to still be an investment period for innovative drugs, and profit growth will accelerate in 2025.
We look forward to the acceleration of new product contributions. Since 2023, the company's three new products: diazepam nasal spray, tirizumab, and methotrexate injection have been successfully included in the national medical insurance catalogue; in February 2024, the company obtained exclusive licensing rights for first-line phosphorus-lowering innovative drug sucrose hydroxide chewables in mainland China, Hong Kong, Macao and Taiwan (the product was approved and included in medical insurance in 2022). We expect the above four new products may contribute 4-5 billion yuan in revenue in 2024. In addition, the clinical trials of the company's four innovative drugs are progressing smoothly: application for marketing of methotrexate (RA) and methylene blue enteric extended-release tablets was accepted, detostat completed phase 3 clinical enrollment, and rucotinib was approved for clinical trials by the State Drug Administration. Furthermore, the company's innovation pipeline continues to expand: in August 2023, it obtained permanent exclusive promotion rights for Class 1 new anti-ischemic stroke drugs in mainland China, Hong Kong and Macau; Ningdan New Pharmaceutical announced that the product has completed phase 2 clinical trials and is about to enter phase 3 clinical trials.
Profit forecasting and valuation
Considering the impact of collection execution, we lowered the 2024 EPS forecast by 47% to 0.71 yuan, and first introduced the 2025 EPS forecast of 0.83 yuan. The current stock price corresponds to 9.4/7.7 times the 2024/25 price-earnings ratio. We lowered our target price by 39% to HK$11, corresponding to the 2024/25 price-earnings ratio of 13.8/11.3 times, with 47% upside compared to the current stock price. Considering our optimism about the company's subsequent innovation pipeline and international expansion, we are still outperforming the industry.
risks
The impact of procurement on sales exceeded expectations, R&D failed, new product promotion fell short of expectations, and internationalization fell short of expectations.