Adjusted net profit in the second quarter of 22 increased by 13% year on year, in line with our expectations, but sales of tumor products were weak in the second quarter of 22 (down 9% from the same period last year).
We believe that the company's research and development and Becton Dickinson & Co's progress are still the main catalysts for the revaluation of the company.
We have lowered our target price based on category-plus valuation from HK $14.8 to HK $14.4. Maintain the overweight rating, optimistic about the progress of the company's pipeline upgrading and strong potential for capital allocation. The performance in the second quarter of 22 is in line with expectations.
Sales of finished drugs in the second quarter of 22 rose 4 per cent year-on-year to 5.991 billion yuan, thanks to rapid growth in anti-infective products (up 19 per cent to 853 million yuan) and solid growth in neurological diseases (up 7 per cent to 1.938 billion yuan). However, due to the disturbance of the epidemic in the second quarter of 22, sales of tumor products fell to 1.898 billion yuan (down 9% from the same period last year and 12% from the previous month). We noticed that in June, during the collection of 13 provincial regional alliances led by Henan, Ke Aili reduced its price by about 80%, which may put pressure on the growth rate of the company's tumor line products. Functional food and other businesses rose 63 per cent year-on-year to 540 million yuan, mainly due to rising prices. API products rose 20 per cent year-on-year to RMB 1.206 billion, as capacity expansion offset the decline in the price of vitamin C products. The overall gross profit margin fell 3.9 percentage points to 71.5%, mainly due to changes in the sales structure and the decline in the unit price of vitamin C products. Adjusted net profit increased by 13% year-on-year (excluding non-recurrent items, such as changes in the fair value of financial assets), which is broadly in line with our forecast for double-digit growth for the full year of fiscal 22.
The mRNA platform continues to be validated
The company SYS6006, the company's candidate COVID-19 mRNA vaccine, is currently conducting six clinical trials.
The company announced a clinical study of SYS6006 on Aug. 23, mainly for sequential booster vaccination.
The clinical results show that the candidate vaccine has met the expectations of safety and immunogenicity. Clinical results show that SYS6006, as a sequential booster needle, has better enhanced immunity against Omicron BA.2 mutants than traditional vaccines, and shows good safety data. We believe that these clinical developments will further verify the strength of the company's mRNA platform.
Maintain the overweight rating and adjust the target price of the classified plus total valuation method to HK $14.4. We have lowered our profit forecast for fiscal year 22 by 2% and 4%, respectively, to reflect the weak sales outlook of Clerk. Therefore, we have lowered the target price from HK $14.8 to HK $14.4. However, our target price still retains a 30 per cent premium based on the category-plus valuation method, reflecting the company's ability to expand Becton Dickinson & Co opportunities. The company's current price-to-earnings ratio is also about 21 times that of other large pharmaceutical companies at a discount of about 45%, which we think provides a sufficient margin of safety in the process of market volatility.