Deeply involved in the field of steroidal drugs for nearly 20 years, laying out the entire industry chain from starting materials to APIs. The company was founded in 2006 and listed in 2021. At the beginning of its establishment, the company mainly provided R&D, production and sales of steroidal drug intermediates. In 2011, it pioneered breakthroughs in biological fermentation and enzyme conversion technology, and became one of the largest suppliers of steroidal drug starting materials in the world, with a market share of about 60%. In the field of intermediates, it laid out sex hormones, progesterone, corticosteroids and other intermediate products, and is the richest supplier of sex hormone intermediates in China. In 2020, the company extended the layout of high-end steroidal API products downstream to achieve the entire industry chain layout of starting materials, intermediates, and APIs for steroidal drugs.

New process innovations are expected to drive the BA market to grow rapidly. Bisabolol (BA) is one of the commonly used starting materials for steroidal drugs. The company was the first domestic enterprise to industrialize BA, with a dominant share. From 2019 to 2021, the company's BA sales volume did not exceed 70 tons, and the market demand was small. In recent years, companies represented by the company have continued to develop new process paths using BA as a raw material. Currently, the main products that can be produced downstream using BA include products such as progesterone, ursodeoxycholic acid, and vitamin D3, but the “BA route” has not yet been applied to the production of these products on a large scale. In the future, with the promotion and use of the new process path “BA route”, the BA market size is expected to grow rapidly.

The progesterone market corresponds to BA demand of about 1,000 tons/year, and the potential replacement space for ursodeoxycholic acid “BA route” amounts to 1,700 tons/year.

Steroid drug intermediates are in the industry integration stage, and the company's product market share is expected to increase. In 2023, domestic and foreign prices of major steroidal hormone raw materials fell sharply. At the end of 2023, the export price of dexamethasone fell by about 67% compared to the end of 2022, and the prices of some products stabilized in Q4 and remained relatively low. Due to the long industrial chain of the steroidal drug industry and the variety of intermediate products, the competitive pattern of the industry is scattered. Currently, there are dozens of domestic steroidal drug intermediate suppliers. The company accounts for about 60% of the domestic steroidal drug starting materials market. Having mastered starting material resources, it is expected to increase its market share in the process of industry integration. At the same time, the company has achieved technological innovation in the important product progesterone, which is expected to speed up the production capacity of the old process of progesterone intermediates and increase its market share.

Vertical expansion+horizontal expansion go hand in hand to open up the company's growth ceiling. In 2020, the company and Huahai Pharmaceutical jointly funded the joint venture Huahai Joint Venture to strategically lay out the API field and stock a total of 14 high-end steroidal API products such as testosterone, didroprogesterone, fluvizin, exemestane, and ursodeoxycholic acid. At the same time, the layout of corticosteroid products was increased. In April 2021, the company and Xinhua Pharmaceutical established a joint venture with Xinxin Pharmaceutical. The company held 40% of the shares, starting with anectin acetate and 17α-hydroxyprogesterone. Furthermore, the company said it will lay out and implement the steroidal drug CDMO/CRO in advance. Hangzhou Research Institute and Wuhan Research Institute have already been put into operation, which is expected to empower the CDMO/CRO business.

Production capacity is about to be launched on a large scale to help revenue grow rapidly. The company's fund-raising project “Progesterone and Intermediate BA Production and Construction Project” began trial production at the end of 2023. It is expected to be officially put into operation in 2024, and is expected to contribute 368 million yuan in annual revenue after delivery. The Huahai Joint Pharmaceutical Ingredient Project is under construction. It is expected that some products will be tested and produced in H1 in 2024, H2 will submit domestic and foreign registration declarations, and large-scale production of some products will be achieved in 2025.

Profit forecasting

We predict that the company's 2023/24/25 revenue will be 583/9.43/1,460 million yuan, corresponding to the current PE of 85/309/23X. Considering the good competitive pattern in the field of starting materials for steroidal drugs, the company has the advantage of starting material resources, the “BA process” has broad replacement space, and continues to promote the “starting material+intermediate+API” integration process for steroidal drugs. The API production capacity will soon be put into operation to contribute incremental revenue, along with the price increase and valuation of the company's original material products There should be a premium, and the first coverage gives an “increase in weight” rating.

Risk warning

Industry policy risk; market competition increases risk; production capacity investment falls short of expectations; risk of product development failure; risk of falling product prices;