Demand for terminals continues to recover, and the pharmaceutical glass business is growing beautifully. The company's 23Q1-3 revenue was 691 million yuan, up 21.5%. The company's revenue in '22 was 822 million, a decrease of 7.5%, mainly due to the decline in revenue from the heat-resistant glass business. Year 22 was the company's project construction year & strategic transformation year. The company focused on medicine packages, and production capacity continued to be released. Short-term profits are under pressure, raw materials and energy prices are high, and the cost side is expected to continue to improve after orders improve. Due to various factors such as rising raw material prices and energy prices, the increase in sales teams, the fact that newly invested kilns have not reached normal operating levels, and increased R&D expenses, 23Q1-3's net profit was 54 million yuan, a decrease of 38%.
Medicinal glass racetracks are booming, and policies help upgrade products and increase concentration. The scale of the pharmaceutical glass industry was 23.4 billion in 2020. The industry CAGR was 3.7%, and the annual demand for pharmaceutical glass products was about 80 billion, including 15 billion molded bottles, 15 billion control bottles, 40 billion ampoules, and 10 billion other pharmaceutical glass types. The penetration rate of borosilicate pharmaceutical glass was only 7%-8% in 2018. We expect the penetration rate of borosilicate pharmaceutical glass to increase to 30%-40%.
The policy continues to support borosilicate conversion, mainly from two aspects. On the one hand, it was proposed to focus on speeding up the conversion of borosilicate in December '16. Along with the advancement of consistency evaluations over the past 20 years, generic drugs need to reach the same level of efficacy and quality as the original research drug, and materials with the same specifications and standards as the original research drug must be selected. On the other hand, related reviews have also increased the stickiness of pharmaceutical packaging companies and pharmaceutical companies, and accelerated industry integration.
The share of ampoules is leading, and the R&D, manufacturing and channels are strong. As the consistency evaluation progressed in the second half of 2020, demand for pharmaceutical glass, especially borosilicate medicine glass, began to increase in 20Q4. In 2021/2022, it achieved revenue of 31/350 million, an increase of 79%/14%. 2023H1 achieved revenue of 211 million yuan, an increase of 37%.
In terms of profitability, overall raw material prices rose in 22/23, the gross margin of borosilicate medicine remained around 30%, and the product structure continued to improve. From a price point of view, the unit price of the company's borosilicate glass bottles in 2022 is 0.19 yuan/bottle, which is 3.8 times that of 0.05 yuan/tube of low borosilicate glass bottles. In 2021, the company's borosilicate control bottle production capacity was 1 billion, and the listed fund-raising project added 1.6 billion units. In October 2022, the company's borosilicate glass tube kiln was successfully ignited. After delivery, it can produce 5,000 tons of medium borosilicate glass tubes per year. Along with the introduction of borosilicate glass tubes from our own production, the yield increases, or the production cost of pharmaceutical glass is reduced.
Production capacity reserves are abundant, and the expansion of borosilicate molded bottles is accelerating. The company has mastered a number of core technologies for borosilicate molded bottles and is actively obtaining A certification for molded bottles. As of August 2023, the company has visited more than 200 downstream customers, completed 80 product samples from downstream pharmaceutical companies, agreed to carry out 18 stability and compatibility tests, agreed to 4 related reviews and approvals, and officially launched 3 related companies. In terms of production capacity, the company currently has a production capacity of about 5080 tons of molded bottles, and plans to release 630 million tons in the short to medium term. In the long term, after the completion of the third phase of the company's high-end pharmaceutical packaging project, the production capacity of pharmaceutical packaging products is 120,000 tons, 200 million pre-filled injections, and 7,000 tons of optical glass, all of which have an estimated annual output value of 2 billion yuan after delivery.
Demand for heat-resistant glass in traditional businesses recovered, and 23H1 heat-resistant glass also increased by 13.7%. In 2022, the total revenue of heat-resistant glass and optoelectronic glass was 420 million yuan, down 28%. 23H1 revenue was 242 million, up 12.05%, and gross profit margin was 11.34%. Affected by rising raw materials and energy prices and the resumption of kiln production, the gross margin decreased 10.7 pct year over year. The company's heat-resistant glass is mainly used in tableware, etc., and has deep cooperation with well-known brands such as American OXO, Korea's LOCK & LOCK, Germany's Shuanglien, Midea, and Galanz. In the future, high-end, lightweight, and environmental protection will be the main trends. The company will continue to enrich product categories, focus on developing products with high added value, and promote product transformation. In terms of production capacity, high borosilicate projects, LED optical lenses, and lightweight borosilicate glass ware projects continue to advance.
Raise profit forecasts and maintain a “buy” rating. The company is a leading domestic borosilicate glass products company. Among them, medicinal glass has maintained a relatively rapid growth rate. As the commissioning of the fund-raising project progresses, the company will further expand the production capacity of the borosilicate medicinal glass business. In addition, considering the gradual release of molded bottle production capacity in '24, we adjusted our profit forecast to estimate the company's net profit of 0.8/1.3/170 million in 23-25 (the original estimate was 0.9/1.1/130 million, respectively), EPS was 0.4/0.6/0.7 yuan/share, respectively, and the corresponding PE was 48/30/23X, respectively.
Risk warning: changes in the international economic situation and trade environment, price fluctuations of major raw materials, risk of exchange rate fluctuations, risk of investment project commissioning progress or falling short of expectations;