Incidents:

In November and October 2023, Jinhe Biotech issued an announcement stating that the active brucellosis vaccine (BA0711 strain) jointly developed by the subsidiary Jinhe Youben Biological Products Co., Ltd. and China Agricultural University and other organizations has obtained the “Veterinary Drug Product Approval Letter” issued by the Ministry of Agriculture and Rural Affairs of China.

Investment highlights:

Brucellosis is a zoonotic disease that seriously harms the development of animal husbandry. Brucellosis is a zoonotic disease caused by bacterial infections of the genus Brucella. It is currently one of the zoonotic infectious diseases focused on prevention and control in China. The incidence of Brucellosis in China has been on a rapid upward trend for many years, and the epidemic has spread to more than 20 provinces and regions. In March 2022, the Ministry of Agriculture and Rural Affairs issued the “Five-Year Action Plan for the Prevention and Control of Brucellosis among Animals (2022-2026)” in March 2022 in order to strengthen the prevention and control of disease among livestock, reduce the prevalence and transmission level, and promote the high-quality development of animal husbandry. The “Plan” requires that by 2026, the overall prevalence of disease among livestock in the country be effectively reduced, that the health standards of the cattle and sheep population have improved markedly, that the individual positive rate be kept below 0.4%, and that the positive population rate be kept below 7%.

The company's products have a clear competitive advantage. The company's live brucella vaccine (BA0711 strain) is a strain obtained by modifying virulence gene deficiency technology using brucella biotype 3, a sheep breed isolated from cattle in China. It can fully meet the requirements of an ideal vaccine for brucellosis issued by WHO. Compared with traditional vaccines, the product has the following 4 major advantages: (1) it is safe for humans; (2) it can be used for pregnant animals and can immunize the whole group; (3) immunized animals can be screened from naturally infected animals; and (4) it can be used for cattle and sheep. Because the product is in line with WHO's ideal vaccine standards, it received a $100,000 vaccine development award from the Global Veterinary Federation (co-funded by the Gates Fund) in 2017.

The product market has a lot of room, and is expected to contribute to performance next year. According to the public communication of Mr. Wang Dongxiao, chairman of the company, in 2022, China released 336 million heads of sheep and 48.4 million heads of cattle per year. Based on the calculation of 1 dose of monomeric immunization per year and 80% coverage, the annual demand for 300 million doses of the disease vaccine is distributed. The Brucellosis vaccine will become the company's new major product, and the sales revenue of 2024 products is expected to reach 100 million yuan.

Profit forecast and investment rating: We expect the company's 2023-2025 operating revenue to be 22.53, 26.58, and 3,022 billion yuan, respectively, up 6.12%, 18.01%, and 13.67% year on year; achieve net profit of 1.39, 1.97, and 241 million yuan, up 83.95%, 41.41%, and 22.43% year on year. Corresponding to the current stock price PE is 28, 20, and 16 times, respectively. The company has obtained a brucellosis vaccine production number and officially entered the field of ruminant vaccines, and its performance is expected to grow rapidly. It was covered for the first time, and a “increase in holdings” rating was given.

Risk warning: the risk of a sharp drop in livestock and poultry prices, the risk of major animal diseases, the promotion of vaccine against diseases falling short of expectations, increased competition in the industry, and declining profitability.