The company is a leading R & D and production enterprise of medical polyethylene glycol and derivative products in China, with core technology patents / Knowhow moat. With the terminal volume and clinical use of commercial products from downstream customers, revenue is expected to continue to grow rapidly in the next few years. In addition, under the two-wheel drive of polyethylene glycol derivative materials and independent R & D products, the company insists on continuous innovation investment in new technologies and new applications, which is expected to open up long-term space; at the same time, the company's profit model is diversified, and it is expected that the income from the transfer of rights and interests from the research products will bring a new increase in performance. To sum up, we give the company 45 times PE in 2023, corresponding to the target price of 220RMB, maintaining a "buy" rating.

Local epidemic repeated factors disturbed the Q3 quarter, excluding the impact of LNP commercial orders, the company's revenue / profit maintained rapid growth.

-- the company's income in the first three quarters of 2022 was 321 million yuan, + 22.59% compared with the same period last year; the net profit of returning to the mother / deducting non-returning to the mother was 165 million / 157 million yuan respectively, which was 20.72% compared with the same period last year. The revenue of Q3 alone is 106 million yuan, year-on-year + 0.09%, which is basically the same as the same period last year, but slightly lower than the previous year (the company's 22H1 final order reached 278 million yuan, and we expect all contracts to confirm revenue in the second half of the year. Therefore, we judge that the revenue fluctuation of 22Q3 is mainly due to the impact of local epidemic recurrence and transportation on the implementation progress of R & D and production projects, as well as the larger LNP commercialization related income in 2021). The net profit of returning to the mother / deducting the non-returning to the mother is 61.07 million yuan respectively, compared with-12.86% and 15.95% of the same period last year. (we judge that the year-on-year decline in net profit in a single quarter is mainly related to the change in the fair value of the "King Lian Wellcome" equity fund that the company subscribed to in July 2021.

The fair value of 22Q3 changed to-13.17 million yuan, compared with + 6.49 million yuan in the same period last year. )-- in the first three quarters of 2022, the company's product sales revenue was 269 million yuan, of which foreign LNP commercial product order revenue was 24.7534 million yuan; in the same period in 2021, the company's product sales revenue was 231 million yuan, of which foreign LNP commercial product order revenue was 39.4692 million yuan (we judge that a larger proportion is 21Q3 recognized income). In the first three quarters of 2022, the company's product revenue increased by 16.32% over the same period last year. After deducting the income from foreign LNP commercial product orders, the product income was 244 million yuan, an increase of 27.36% compared with the same period last year. In the first three quarters of 2022, after deducting the influence of net profit from foreign LNP commercial products, the net profit increased by 30.04% compared with the same period last year. After deducting the net profit from foreign LNP commercial products orders and non-recurrent profits and losses, net profit increased by 37.79% compared with the same period last year.

Increase R & D investment + expand production capacity, consolidate the leading position in the PEG field, and open the ceiling of long-term growth.

-- the company's sales, management, R & D and financial expense rates for the first three quarters of 2022 were 2.78%, 11.14%, 19.13%, 4.22%, respectively, compared with the same period last year (total + 1.84pcts, we judge that the change in financial expenses is mainly due to exchange gains). The company continues to invest in research and development, around the PEG platform, rhythmically promote self-research drug / device-related innovative products; we expect that the future company R & D expenditure rate will remain relatively stable according to revenue and project schedule. The company's gross profit margin in the first three quarters of 2022 was 85.14%, year-on-year-1.04pcts. Excluding equity incentive amortization expenses, the gross profit margin is 86.72%, year-on-year-1.46pcts; homing / deducting non-homed net profit rate is 51.47%-48.98%, year-on-year-2.90pcts/0.76pcts. The change in gross profit margin is mainly due to the change in the proportion of sales at home and abroad, as well as changes in the product structure of foreign sales income. The single Q3 gross profit margin is 85.01%, year-on-year-3.36pcts, month-on-month ratio + 0.84pct; return-to-mother / deduction non-return net profit rate is 50.65% / 57.51%, year-on-year-7.53pcts/+7.86pcts, month-on-month-1.20pct/+11.04pcts.

-- on October 31, the company announced that it planned to increase the investment scale of the industrialization and application achievements transformation project of medical and medicinal polyethylene glycol and its derivatives. The total investment of the original project was 151.8393 million yuan, but now it has increased to 440.4213 million yuan. The increased investment part plans to use the previous super-raised funds of 117.1345 million yuan, and the rest will be raised by the company itself. This change will increase the floor area to 32428.19 square meters, an increase of 12947.59 square meters. After increasing the investment scale, the new project has added one multi-arm polyethylene glycol and six polyethylene glycol derivatives production lines, and has the production capacity of PEG derivative gels, antibody coupling drugs, PEG proteins and small nucleic acid drugs for injection. The purpose of this adjustment is to support the company to aim at the future development direction of the industry, promote the engineering and industrialization of polyethylene glycol technology, improve the company's pan-polyethylene glycol materials and R & D platform, and lead biomedical innovation with material innovation.

Risk factors: core technology iteration risk; technology and products can not meet customer demand risk; innovative pharmaceutical product research and development failure risk; intellectual property disclosure or infringement risk; downstream end product marketing or life cycle management risk.

Investment suggestion: the company is a leading R & D and production enterprise of medical polyethylene glycol and derivative products in China, with core technology patents / Knowhow moat. With the terminal volume and clinical use of commercial products from downstream customers, we expect its revenue to continue to grow rapidly in the next few years. In addition, under the two-wheel drive of polyethylene glycol derivative materials and independent R & D products, the company insists on continuous innovation investment in new technologies and new applications, which is expected to open up long-term space; at the same time, the company's profit model is diversified, and it is expected that the income from the transfer of rights and interests from the research products will bring a new increase in performance. Considering that the overseas LNP-related business and domestic production and implementation are repeatedly affected by the local epidemic situation, the company's EPS forecast for 2022-2024 is 3.67 EPS 4.84 pounds 6.29 yuan (the original forecast is 4.05 pounds 5.60 pounds 7.67 yuan), and the current price is 50x/38x/29x respectively. With reference to the current comparable companies (Aladdin, Nanwei Technology) with an average PE of 47 times in 2023 (based on Wind consensus expectations), the company is given 45 times PE in 2023, corresponding to the target price of 220RMB, maintaining the "buy" rating.