Announcement: Jiuzhou Pharmaceutical released its 2023 annual report.

Comment:

Revenue side growth is slowing. In 2023, the company's operating income was 5.523 billion yuan, up 1.44% year on year; net profit to mother was 1,033 billion yuan, up 12.17% year on year; net profit after deducting non-return to mother was 1,024 billion yuan, up 10.46% year on year; and the company's operating cash flow was 1,360 billion yuan, up 10.98% year on year. In the fourth quarter of 2023, the company's revenue was 947 million yuan, down 11.71% year on year, and net profit to mother was 66 million yuan, down 62.64% year on year, after deducting non-net profit of 73 million yuan, down 55.74% year on year.

Operating conditions by business segment in 2023:

(1) CDMO business: Revenue of 4,079 billion yuan, up 19.40% year on year, accounting for 73.86% of total revenue and 40.34% gross profit margin. The company has an increasingly rich pipeline of API CDMO projects, and has formed a sustainable preclinical/clinical phase I, II, and III funnel-type project structure, and the number of new drug projects that have been submitted for NDA is rapidly increasing. By the end of the reporting period, the company had undertaken 32 projects (+6), 74 phase III clinical projects (+13), and 902 phase I and phase II clinical trials (+138).

In terms of the formulation CDMO business, the company's formulation team provided services for more than 70 formulation projects for more than 40 customers and introduced more than 20 new customers. In terms of the peptide and conjugated CDMO business, the company's peptide team completed the synthesis and delivery of dozens of peptides, the preparation and delivery of multiple conjugated drug compounds, and successfully delivered the 10-million-grade polypeptide IND project. In 2023, the Ruibo Taizhou (Phase I) production workshop and supporting facilities completed the main construction and entered the equipment installation stage. Some production lines are expected to be put into use in Q2 2024; the API spray drying production workshop will be put into use; the Ruibo Suzhou pilot plant will be put into use one after another; and Ruibo America has carried out the second phase of the pilot plant installation and design work.

(2) Specialty APIs and intermediates business: Revenue of 1,261 billion yuan, a year-on-year decrease of 22.95%, accounting for 22.83% of total revenue and a gross profit margin of 32.92%. Among them, revenue from anti-infective products was 333 million yuan, down 43.67% year on year, gross margin was 15.76%; revenue from central nervous system drugs was 464 million yuan, down 17.25% year on year, gross margin was 43.88%; revenue from non-steroidal drugs was 304 million yuan, up 5.49% year on year, gross margin was 44.65%; revenue from hypoglycemic drugs was 160 million yuan, down 18.59% year on year, gross margin was 14.56%

The company effectively implements the five-year strategic plan to achieve high-quality development. In 2023, the company invested 377 million yuan in R&D, an increase of 12.32% over the same period last year, accounting for 6.82% of revenue. At the same time, the company continues to promote the strategy of “deepening” big customers and “expanding” new customers, forming in-depth cooperation with well-known international pharmaceutical companies Novartis, Roche, Zoetis, Gliead, Daiichi Sankyo, etc., and has established long-term cooperative relationships with well-known domestic new drug research and development companies with Huang Pharmaceutical, Luye Pharmaceutical, Haihe Pharmaceutical, Beida Pharmaceutical, and Hualing Pharmaceutical. In 2023, foreign revenue was 4.307 billion yuan, up 3.68% year on year, with a gross profit margin of 40.80%. Among them, customers in the European and American markets continued to grow steadily, and customers in the Japanese and Korean markets expanded significantly. Domestic revenue was 1,099 billion yuan, up 7.04% year on year, with a gross profit margin of 28.66%. The Chinese market fully developed core customers, strengthened customer stickiness, and delivered a number of integrated API and formulation projects.

Profit forecast. We forecast that the company's net profit for 2024-2026 will be 1,187 billion yuan, 1,407 billion yuan, and 1,597 billion yuan respectively, up 14.9%, 18.5%, and 13.6% year-on-year, and EPS of 1.32, 1.56, and 1.78 yuan respectively. Referring to comparable company estimates, considering Jiuzhou Pharmaceutical's “CDMO Big Customer+API” two-wheel drive model, we gave it a reasonable value range of 19.80-23.76 yuan per share between 15-18 times in 2024, giving it a “superior to the market” rating.

Risk warning. Industry competition increases risk; risk of falling API prices; risk of exchange rate fluctuations; risk of customer pipeline sales falling short of expectations; risk of customer pipeline R&D failure.