Core views

New Novus's revenue declined for the full year of 2023, mainly due to pressure on caffeine prices, but due to the further decline in raw material costs and prices, the gross margin of products increased, and profits grew steadily.

The company acquired Jushi Biotech and Shiyao Baike, a subsidiary of Shiyao Group, and introduced a number of innovative assets such as monoclonal antibodies, ADC, mRNA vaccines, and GLP-1. Among them, PD-1 monoclonal antibodies and omalizumab are expected to be approved and contribute revenue this year. The company accelerates the deployment of innovative pharmaceuticals and opens up room for future growth.

occurrences

On March 14, New Novi released its annual report. In 2023, the company achieved revenue of 2,502 billion yuan, a year-on-year decrease of 4.75%, and net profit to mother of 760 million yuan, an increase of 4.03% over the previous year, after deducting net profit of 740 million yuan, an increase of 13.09% over the previous year.

Brief review

Results are in line with expectations, and caffeine prices are under pressure

New Novartis released its annual report. In 2023, the company achieved revenue of 2,502 billion yuan, a year-on-year decrease of 4.75%, net profit to mother of 760 million yuan, an increase of 4.03% over the previous year, and net profit after deducting non-return to mother of 740 million yuan, an increase of 13.09% over the previous year. The company's revenue declined slightly, mainly due to pressure on the price of its main product, caffeine; however, the profit side grew steadily throughout the year, mainly due to the more serious decline in the price of raw materials for the product, compounding the company's size effect, and gross margin increased 2.65 percentage points.

Increase capital of Dushi Biotech to lay out innovative drug business. In 2023, New Novus plans to increase its capital in cash to “Jushi Biotech”, a subsidiary of the same Shiyao Group, and acquire 51% of the company's shares to achieve control and consolidation of Jushi Biotech. The estimated value of Jushi Biotech is 1,798 billion yuan, and the total amount of this capital increase is 1,871 billion yuan. This capital increase does not constitute a major asset restructuring.

Jushi Biotech is an innovative biomedical enterprise with independent research and development capabilities as the core driving force. It focuses on the fields of antibody drugs, antibody conjugated drugs (ADC), and mRNA vaccines. Currently, there are more than 20 research projects. Of these, 1 mRNA vaccine product has entered the commercialization stage, and 8 products are being manufactured domestically at different stages of clinical trials or are being declared for listing. Of these, 2 products are in clinical phase II/III, and 3 products are in clinical phase I stage.

The year ahead will be rich in catalytic events. Dushi Biotech's PD-1 monoclonal antibodies and omalizumab were accepted by the NDA in '23 and are expected to be approved for marketing this year. Among them, PD-1 monoclonal antibody was declared as cervical cancer, and combination chemotherapy will be commercialized. Omalizumab is expected to be the first domestically produced biosimilar, and the market prospects are quite broad. Meanwhile, the two bioanalogues usinumab, pertuzumab, and HER2 ADC SYS1501 are expected to be submitted for marketing this year. EGFR ADC clinical phase I data are expected to be read out this year.

Acquisition of Shiyao Baike: Enriching the product layout and ushering in a new revenue growth point. On January 10, 2024, New Novell announced that it is planning to acquire Shiyao Group's Baike. New Novartis plans to purchase 100% of the shares held by Vitamin Pharmaceuticals, CSPC Shanghai, and Enbipu Pharmaceutical through the issuance of shares and cash payments. The final transaction consideration for Shiyao Baig has not yet been determined, and the proportion of shares issued and cash paid to the counterparty in this transaction has not yet been determined. The cash payment ratio in the transaction does not exceed 10%, and the rest is paid by issuing shares. The price of issued shares is not lower than 80% of the average stock trading price for the 120 trading days before the pricing benchmark date, or 20.91 yuan/share.

Shiyao Baike is mainly engaged in R&D, production and sales in innovative biopharmaceuticals such as long-acting protein drugs, and mainly achieves revenue and profit through sales of core products. Currently, its main product is the self-developed long-term whitening preparation Jin Youli (polyethylene glycolylated recombinant human granulocyte stimulating factor injection), which was approved for marketing in 2011 to increase the number of white blood cells to ensure anti-tumor treatment effects. In recent years, Tianjin Youli's sales have continued to grow steadily. In 2022, sales of public hospitals reached 2.42 billion yuan, accounting for about 33.4% of the market share; 2023H1 sales were 1,117 billion yuan, which is a strong support for the basic revenue market.

At the same time, Shiyao Baike is actively developing TG103 injection. Its component category is antibody-like fusion protein, the target is GLP1R, and the indication under development is type 2 diabetes. The TG103 injection was first clinically approved in 2018. Currently, it has entered phase III clinical stage in China, and two phase III clinical trials were announced in February this year, including monotherapy and treatment with metformin in combination with metformin. The pace of progress is expected to continue to accelerate in the future

Financial analysis: Sales expenses are controlled, and management expenses have increased

In '23, the company's sales expenses were 210 million yuan, a year-on-year decrease of 15.97%, mainly due to a decrease in the company's investment in health food product marketing.

Management expenses were 86.57 million yuan, an increase of 24.54% over the previous year, mainly due to the increase in labor costs, depreciation and amortization expenses, and office expenses of the company's management personnel. R&D expenses are 46.54 million yuan, which is basically the same as in '22.

Profit forecasts and investment advice

Without taking into account Shiyao 100g, we expect the company's revenue for 2024-2026 to be 2.84 billion yuan, 3.39 billion yuan, and 4.02 billion yuan, with net profit attributable to mother of 850 million yuan, 960 million yuan, and 1.08 billion yuan respectively, corresponding to 53, 47, and 42 times PE, maintaining a “buy” rating.