Items:

On July 13, 2022, Huahai issued a semi-annual report advance announcement. In the first half of 2022, the company is expected to achieve a net profit of RMB 565-591 million (an increase of 10% RMB15% over the same period last year) and deducting a non-net profit of RMB5.76-604 million (an increase of 23.5% from 220% YoY).

In terms of structure, the company deducted 131 million yuan in non-net profit in the first quarter of this year and 445-473 million yuan in the second quarter, greatly exceeding market expectations.

Comments:

The three major business sectors improved in an all-round way, with quarterly and semi-annual performance reaching an all-time high. We estimate that the company's revenue in the second quarter accelerated further on the basis of 18.42% in the first quarter, and the exports of APIs, domestic preparations and preparations all maintained rapid revenue growth. On the cost side, the company is expected to slow down its R & D spending in the first half of the year due to the epidemic in Shanghai. In addition, in addition to directly increasing the company's RMB valuation and export business gross profit margin, RMB depreciation is expected to bring the company tens of millions of exchange gains in the second quarter according to the company's revenue account and account period. Summing up the above information, we believe that the rapid growth of the business side and the appearance of scale effects, the help of superimposed exchange rate and cost control, and the resonance of various factors led to excellent performance in the first half of the year.

The medium-term growth drivers of all businesses remain strong and are likely to be further strengthened. Since the US ban was lifted in November last year, the company has shown a steep slope of business improvement. From the current point of view, we believe that the company is still in the initial stage of a new round of high growth, and the growth momentum of various businesses is still strong in the medium term:

1) the end of raw materials, sartan and other categories are expected to increase steadily. More new projects are expected to be launched in the second half of the year.

During the transition from the second half of the year to 25 years, the concentration of Shaban, Letine, Liejing and other categories is expected to bring more and more obvious new driving forces; 2) sales growth of US preparations is still flat from January to May, but the stock volume of the US business has doubled. Taking into account the cycle of production to achieve end sales in the United States, we expect the preparation export business to continue to grow in the second half of the year. Since November last year, 29 varieties of the company have been released and 16 new ANDA have been approved, with a significant increase in variety. 3) the collection mode is extremely suitable for the company's resource endowment.

At present, domestic preparations still maintain a rapid growth of about 30%. In view of the significant acceleration in company filings since last year, we expect that approval of new varieties will also accelerate from next year.

The performance greatly exceeded expectations, the valuation was appropriate, and the "push" rating was maintained. In terms of business and revenue, we believe that the situation of the company's three major business sectors in the second half of the year will be further better than that in the first half of the year. However, taking into account the increase in R & D expenditure and some consolidation of pharmaceutical biopharmaceutical assets in the second half of the year, for the sake of safety, we expect the company's net return profit from 2022 to 2024 to be 9.20,12.11 and 1.578 billion yuan respectively, up 88.8%, 31.6% and 30.2% respectively. The current stock price corresponds to the PE of 36, 27 and 21 times respectively from 2022 to 2024. Taking into account the company's clear prospects for rapid growth and the company's leading position in the pharmaceutical advanced manufacturing sector, we believe that a certain valuation premium should be given appropriately, with reference to the comparable company's valuation, 40 times PE in 2023, corresponding to a target price of 32.4 yuan, maintaining a "strong push" rating.

Risk tips: 1, the company's US preparation business recovery is not up to expectations; 2, the company's domestic preparation approval is not up to expectations; 3, the domestic preparation business competition is intensified; 4, the release of new varieties of API is not up to expectations; 5, the competition in the API industry is intensified.