CSPC Pharmaceutical (the "Company")'s performance for the first quarter of 2022 was lower than we expected, mainly due to a loss at fair value of financial assets at fair value included in profit or loss. Revenue in the first quarter of 2022 increased 16.9% year-on-year to 78,74 million yuan; shareholder net profit fell 4.6% year-on-year to 1405 million yuan, accounting for 22.4% of our annual forecast. Excluding non-operating items and one-time income, shareholders' net profit is expected to increase by 12.3% year-on-year to 1540 million yuan.
The sales of proprietary medicines are affected by the multi-point distribution of the COVID-19 epidemic across the country. In the first quarter of 2022, proprietary medicine revenue increased by 15.0% year-on-year to 6302 million yuan. Based on a high base in the first quarter of 2021, Enpip sales are expected to grow by 7.4 per cent year-on-year. Due to the multi-point distribution of COVID-19 's epidemic and the adjustment of the sales team, the growth rate of sales of anti-tumor products slowed to 15.4% in the first quarter of 2022 compared with the same period last year. However, thanks to the inclusion of Amphotericin B cholesterol sulfate complex (Amphotericin B cholesterol sulfate complex) in the health insurance catalogue, anti-infective products recorded a good growth of 28.4%. With the continuous increase in the number of products listed in recent years, respiratory disease products and digestive and metabolic disease products have also recorded strong growth. As the COVID-19 epidemic still exists in major cities, sales of proprietary medicines are expected to be affected in the second quarter of 2022. The company is actively working with retail leaders to expand its retail network in order to gain greater growth potential. The segment profit margin of proprietary medicine fell slightly by 0.2 percentage points year-on-year to 25.2%, which may be due to increased investment in research and development. We expect the segment profit margin to stabilize throughout the year due to the reduction in sales and distribution expenses.
Revenue from APIs and other products rose 25.3% year-on-year to 1572 million yuan: sales of antibiotics, vitamin C and caffeine all increased, with caffeine prices rising but vitamin C prices falling. Segment profit margins in APIs and other businesses fell 5.7 percentage points year-on-year to 18.8 per cent due to lower prices of vitamin C. According to management, the company currently accounts for 70% and 45% of the market share in caffeine APIs and vitamin C APIs, respectively, indicating the company's advantages in terms of production capacity and cost. The depreciation of the RMB is expected to benefit the API business, hedging some of the downside risks of falling vitamin C API prices.
Novel coronavirus mRNA vaccine research and development progress in line with expectations. Novel coronavirus mRNA vaccine SYS6006, which has been approved by new drug clinical trials in April 2022, has completed the second dose of injection in subjects in the Ⅰ phase study, and the corresponding data are expected to be obtained in July 2022. Phase I clinical trials are expected to begin in June 2022. The company is making a preliminary assessment of the effectiveness of the strengthening needle. The company is still in discussions with a number of countries on sequential vaccination. In addition, the novel coronavirus mRNA vaccine developed by CSPC Pharmaceutical has an advantage in storage, which can be stored between 2 and 8 degrees Celsius. At present, the company is ready for the production of SYS6006, with an existing production capacity of 500 million doses, and is expected to reach at least 1 billion doses by the end of this year. In addition, the company is preparing applications for clinical trials of new drugs for rabies vaccines.
The company is expected to have more than 30 innovative / new preparation drugs and more than 60 generic drugs on the market in 2022-2026, which is expected to provide strong support for the company to achieve a double-digit annual compound growth rate of shareholder net profit from 2022 to 2026. Mitoanthracene liposomes and doveriser (PI3K inhibitor) were approved for production in the first quarter of 2022. We expect rezetinib (third generation EGFR TKI) and mRNA COVID-19 vaccines to be approved in 2022; amphotericin B liposomes, irinotecan liposomes, paclitaxel nanoparticles, norvenlafaxine, SYSA1802 (PD-1), JMT103 (RANKL) and SKLB1028 (FLT3-TKI) will be approved in 2023. New indications for albumin-bound docetaxel, DBPR108 (DDP4i), JMT101 (EGFR monoclonal antibody), HA121-28 (RET-TKI), DP303C (HER2 ADC) and Enbipu soft capsules (vascular dementia > and irinotecan liposomes) will be approved in 2024.
CSPC Pharmaceutical is a good target for medium-and long-term investment. In the long run, the core competitiveness of pharmaceutical manufacturers will return to R & D and innovation. Considering that the company has sufficient capital, good R & D strength, rich product pipeline and continuous output, and the sales network is mature, we believe that the medium and long term is worth "buying". The target price is HK $11.00, which is equivalent to 19.0 times 2022 price-to-earnings ratio / 16.8 times 2023 price-earnings ratio. Risk: 1) policy (including epidemic prevention risk: 2) pipeline delay: and 3) price fluctuations of raw materials.