Company profile: Shiyao Group is a national innovative enterprise integrating R&D, production and sales of innovative drugs. It has a globally integrated R&D system and more than 10 pharmaceutical production bases. Its products are sold to more than 100 countries and regions around the world.
Financial update: Revenue for the first quarter of 2022 was RMB 7.874 billion, +16.9% year on year. Net profit was RMB 1,405 million, or -4.6% year on year. Earnings per share were -4.1% YoY to RMB 11.79. Excluding changes in the fair value of financial assets that include profit and loss at fair value (non-cash items arising from operations), net profit was RMB 1,537 million, +10.3% year on year.
Our point of view:
1. Earnings growth for oncology drug products was strong. Major developments since the beginning of 2022: obtaining Chinese drug registration approval for Doendal (mitoxantrone hydrochloride liposome injection) in January for the treatment of recurrent or intractable peripheral T-cell lymphoma (PTCL). This product is an anti-tumor nanomedicine independently developed by the company. It is also the first mitoxantrone nanopharmaceutical to be marketed in the world. Currently, clinical research on various indications is ongoing. The Chinese drug registration approval for chlorbital (duvericet capsules) was obtained in March to treat adult patients with recurrent or refractory follicular lymphoma who have undergone at least two systematic treatments in the past. This product is the world's first approved oral PI3K-delta and PI3K-gamma dual inhibitor, and the first approved PI3K selective inhibitor in China. The company submitted a listing application for irinotecan liposome injection (indication: pancreatic cancer) in China in April.
2. A strong pipeline of innovative medicines is expected to accelerate earnings growth in the 2022-2024 fiscal year. Shiyao Group plans to launch 40 new products covering 50 diseases in 2022-2026, which is expected to boost sales growth. Eighteen of these are expected to launch within the next 3 years.
3. Mergers and acquisitions have strong financial resources and are expected to further enrich the pipeline. As of December 2021, Shiyao Group's net cash was RMB 11 billion. Furthermore, the Hang Seng Composite Industry Index (Healthcare) has fallen by more than 40% in the past 12 months, and the primary market valuation of the healthcare industry has always been discounted. Shiyao Group is expected to further enrich its pipeline through mergers and acquisitions.
Investment advice: Shiyao Group's mixed forward price-earnings ratio (12.2 times) is 53.2% compared to the industry average (25.6 times), and 23.7% compared to its historical 2-year average (16.0 times). We think it's recommended to buy based on the above views and current discounted valuations.