The 2023 results are largely in line with our expectations

The company announced its 2023 and 1Q24 results: the company's revenue in 2023 was 52,918 billion yuan, up 38.30% year on year, and the net profit to the mother was 8.070 billion yuan, up 7.04% year on year, basically in line with our expectations. The company plans to pay a cash dividend of 8.0 yuan for every 10 shares; the 1Q24 company's revenue was 11.396 billion yuan, up 2.00% year on year, and net profit of 1,458 billion yuan, down 28.26% year on year. The main reason was the change in the company's revenue structure, which was slightly lower than our expectations.

Development trends

The HPV vaccine business has entered a period of steady growth. According to the company's announcement, in 2023, the company's agent product revenue was 51.885 billion yuan, up 48.35% year on year, and revenue from independent products was 1,028 billion yuan, down 68.70% year on year. The core agent variant 4/9 HPV vaccine product structure changed. The batch volume issued in 2023 was 10.34 million doses (YoY -26.27%) and 36.55 million doses (YoY +136.16%), respectively. We expect the company to further increase the sales ratio of the 9-valent HPV vaccine in the future. 1Q24's revenue was 11.396 billion yuan, up 2.00% year on year. We expect the 9-valent HPV vaccine to be the main contributor to the performance. Considering that the 9-valent HPV vaccine has been fully implemented in all provinces, and that male indications are about to be approved, we recommend that we keep a close eye on the company's 9-valent HPV vaccine dosage progress.

The proxy GSK shingles vaccine has begun to be implemented. As of 4M24, a total of 25 batches of the GSK recombinant shingles vaccine (Shingrix), which is the exclusive agent of the company, have been approved. We expect the vaccine to significantly increase the company's performance starting in 2Q24. Furthermore, by the end of 2023, the company had 3,990 sales personnel, an increase of 18.8% over the previous year, providing sufficient manpower guarantee for Shingrix's marketing. We are optimistic about Shingrix's domestic sales prospects, and we recommend paying close attention to the pace of product release.

R&D is progressing steadily, and the self-research pipeline is about to be realized. In 2023, the company invested 1,345 billion yuan in R&D, an increase of 20.82% over the previous year, and the number of R&D personnel increased to 927, an increase of 14.87% over the previous year. In terms of research and pipeline, the quadrivalent influenza vaccine is in the marketing review stage, and we expect the product to be approved for marketing this year; the human diploid rabies vaccine has completed phase III clinical trials and is in preparation for production; the 15-valent pneumococcal conjugate vaccine, ACYW135 cluster flow brain conjugate vaccine, diarrhoeal disease bivalent vaccine, and the component 100 white vaccine are in phase III clinical phase; and the quadrivalent norovirus vaccine is in phase II clinical phase.

Profit forecasting and valuation

Taking into account the adjustments in the company's revenue structure and changes in the number of newborns, we carefully lowered the company's 2024 profit forecast by 9.3% to 9.477 billion yuan, and the 2025 profit forecast by 7.0% to 10.98 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 9.3 times/8.0 times. Since we lowered our profit forecast, based on the P/E valuation method, and considering the downward shift in the valuation center of the A-share vaccine sector, we lowered our target price by 20% to 52.0 yuan (corresponding to the 2024/2025 price-earnings ratio of 13.1 times/11.3 times), which has 41.0% upside compared to the current stock price.

risks

There is a risk that the competitive landscape will deteriorate, and progress in the research pipeline will not be smooth.