Events: the company recently released the first quarter report of 2021 and 2022, the company realized revenue and deduction of non-return net profit of 1.258 billion yuan (+ 5.43%) and 126 million yuan (+ 56.46%) respectively in 2021; 2022Q1 achieved revenue and deduction of non-return net profit of 500 million yuan (+ 47.86%) and 109 million yuan (+ 142.75%) respectively, and 2022Q1 performance growth exceeded expectations.

The net profit of 2022Q1 deducting non-return increased by 142.75% compared with the same period last year, and the performance growth exceeded expectations.

On the sales side, revenue in 2021 and 2022Q1 reached 1.258 billion yuan and 500 million yuan, up 5.43% and 47.86% respectively over the same period last year. Among them, in 2021, the revenue of API and intermediate, CDMO, preparation and pharmaceutical circulation business realized 748 million yuan (- 21.50%), 265 million yuan (+ 118.31%), 153 million yuan (+ 103.58%) and 79 million yuan (+ 92.32%), respectively. In 2021, the revenue of API business decreased compared with the same period last year, mainly due to the rise of raw material costs, API price fluctuations, exchange rate fluctuations and other factors.

On the profit side, in 2021 and 2022Q1 achieved net profits of 126 million yuan and 109 million yuan, up 56.46% and 142.75% respectively over the same period last year. Thanks to the rapid development of CDMO and other business, 2022Q1 performance growth exceeded expectations.

Reach a 10-year strategic cooperation with Merck & Co Inc to accelerate the transformation and upgrading of CDMO business

The company's CDMO business has established cooperation with famous pharmaceutical companies at home and abroad, including reaching a 10-year CDMO strategic cooperation agreement with Merck & Co Inc in the field of animal protection. According to the company announcement, by the end of 2021, nine projects in the first phase of Merck & Co Inc's CDMO cooperation project have been carried out at different stages, and technology transfer has been gradually completed and is expected to be commercialized soon.

Practice the development route of multi-category and multi-market, and further consolidate the business advantages of APIs.

The company rapidly promotes the registration of new product research and development and expands the standard market access in China, Europe and the United States, and implements the development route of multi-category and multi-market of APIs. According to the company announcement, by the end of 2021, there are a total of 43 API varieties under research, of which 14 have been converted to production, 11 have been submitted to overseas market registration and certification, and 8 have been submitted to domestic CDE registration. In addition, the company currently has a number of COVID-19 specific drug key intermediates / API production process, some varieties to achieve commercial supply.

With the implementation of the development strategy of "technology transfer + independent declaration + domestic MAH cooperation", the preparation business has a good development trend.

The company actively implements the preparation management and development strategy of "technology transfer + independent declaration + domestic MAH cooperation". In 2021, the preparation business achieved an income of 153 million yuan, an increase of 103.58% over the same period last year. Among them, in the domestic market, perindopril tert-butylamine tablets and pregabalin capsules won the bid for the fourth batch of national centralized procurement; Atto vastatin calcium tablets, losartan potassium tablets and lisinopril tablets were successfully collected and renewed. 13 provinces in Guangdong won the bid and Jiangsu / Shandong regional collection.

Investment suggestion: we expect the company to achieve net profit of 306 million yuan, 406 million yuan and 536 million yuan respectively from 2022 to 2024, an increase of 115.0%, 32.6% and 31.9% respectively over the same period last year.

Risk hints: API price fluctuation risk, exchange rate fluctuation risk, R & D progress is not as expected.