Investment suggestion
We downgraded the company to neutral and lowered its target price by 45.5% to HK $6, corresponding to a price-to-earnings ratio of 20.9 times earnings in 2022, which is 11.1% upside from the current share price.
The company announced: mid-reported results in 2021: revenue of 202 million yuan, down 90.3% from the same period last year; net loss of 346 million yuan (excluding the impact of convertible bonds), corresponding to a loss of 0.31 yuan per share. Due to the continued decline in sales of core products Kewei, 1H21 performance is lower than we and the market expected.
Sales of core products Kewei continued to decline. Since the outbreak of the COVID-19 epidemic last year, Chinese people's awareness of epidemic prevention has increased significantly, and protective behaviors such as wearing masks have become daily lives. we believe that this has led to a significant reduction in the incidence of influenza in China, as well as a significant reduction in hospital prescription and drug sales. And it was winter when the epidemic broke out at the beginning of last year, and the flu peak season superimposed epidemic panic, so that the company's core product Kewei had more shipments at that time, and the accumulation of terminal inventory increased significantly. Later, due to epidemic protection, reduced social frequency and other reasons, Kewei inventory consumption decreased significantly, and the company believes that it has been in the stage of destocking since the beginning of last year. As a result, Kewei sales have continued to decline since the first half of 2020, and the contributed income in the first half of 2021 was only 53.64 million yuan, down 97% from the same period last year, dragging down the company's overall performance. As the domestic epidemic stabilizes and mobility and social activities return to normal, the company expects Coway sales to stop falling or recover.
In the smooth progress of the research pipeline, generic drugs are expected to contribute part of the cash flow. The company recently introduced a total of 33 generic drug projects, of which 26 have been approved and 11 have been included in the collection list, including olmesartan axetil, moxifloxacin and so on. The company expects that all the remaining products under research will be approved within this year. The company said that it will actively participate in the collection of all generic drug products, and believes that the generic drug product group can contribute stable cash flow in the future. In terms of innovative products, the indication of lilotinib for esophageal cancer has entered the third-line clinic, and the company expects that this product is expected to become the first small molecule targeted drug for the treatment of esophageal cancer in China. secondly, the first-line new drug of hepatitis B, Mofisedine, is also progressing smoothly in the third phase of the clinic. The company expects two new drugs to be available in 2023-2024.
What is the biggest difference between us and the market? We expect that Kewei sales will recover to a certain extent in the second half of the year, but under the normalization of the epidemic, influenza testing and prescription will be stricter, influenza drug sales will still have a certain impact.
Potential catalyst: the recovery of Kewei sales is better than expected; the company's R & D pipeline is advancing faster than expected.
Profit forecast and valuation
Due to the continued decline in sales of core products, we have lowered the company's revenue forecast for 2021-2022 by 50% to 12.2 / 1.76 billion yuan, and the company's core net profit forecast for 2021-2022 by 99% and 66% to 8.47 million yuan and 272 million yuan. We downgraded the company to neutral and lowered its target price by 45.5% to HK $6, corresponding to a price-to-earnings ratio of 20.9 times earnings in 2022, which is 11.1% higher than the current share price.
Risk.
Relying on a single product, the research and development progress is not as expected, and the policy suppresses the price more than expected.