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On August 30, the company released its semi-annual report of 2022. In the first half of 2022, the company achieved operating income of 3.823 billion yuan, an increase of 25.97% over the same period last year, and a net profit of 568 million yuan, an increase of 10.15% over the same period last year, deducting 583 million yuan of non-net profit, an increase of 233.83% over the same period last year. In the second quarter alone, the company achieved an income of 2.051 billion yuan, an increase of 33.31% over the same period last year, and a net profit of 430 million yuan, an increase of 65.14% over the same period last year, deducting 453 million yuan from non-net profit, an increase of 1405.26% over the same period last year. The performance in the second quarter and half a year alone reached an all-time high.

Comments:

The three major business sectors are thriving, with semi-annual performance reaching an all-time high. From the perspective of business segment: 1) the revenue of API business in the first half of the year was 1.552 billion yuan, an increase of 20% over the same period last year, and a gross profit margin of 45.5%, an increase of about 2 percentage points over the same period last year. Satan, Puli, nerves and other major categories have achieved a relatively good year-on-year growth. 2) the domestic generic drug business has benefited from the high-speed growth of hypertension and neurological products and the new collection of varieties began to contribute considerable income increment, achieving rapid growth. 3) in the preparation export business, the import ban in the United States has been completely lifted, and the company will seize the opportunity of recovery in the United States market, continue to promote the coverage of new and old products in the United States market, and is expected to further accelerate in the second half of the year. On the R & D side, the company spent 440 million yuan on R & D in the first half of the year (it is expected that the R & D cost will be controlled below 1.1 billion yuan for the whole year). In addition, the devaluation of the RMB not only directly increased the company's RMB valuation and export business gross profit margin, but also brought an exchange gain of 120 million yuan in the second quarter. Summing up the above information, the rapid growth of the business side and the appearance of scale effects, with the help of superimposed exchange rate and cost control, the resonance of various factors brought excellent performance in the first half of the year.

The growth drivers of all businesses remain strong in the medium term and are expected to be further strengthened. Since the US ban was lifted in November last year, the company has shown a steep slope of business improvement. Standing at the current point of time, we believe that the company is still in the initial stage of a new round of high growth, and the growth driving force of various businesses is still strong in the medium term: 1) the raw material medicine end, Satan and other categories are expected to grow steadily. The company approved preparation products in the first half of the year, such as Shaban, Liejing, Liting and other large varieties, in the second half of the year, it is expected to bring better growth to the raw material drug end with the gradual expansion of these important products. Looking forward to the next three years, the concentrated expiration of patents for cardiovascular and diabetes drugs, as well as the release of raw materials for anti-epidemic drugs are expected to bring more and more obvious new driving forces; 2) American preparations, since November last year, 29 varieties of the company have been lifted and 20 new ANDA have been approved, with a significant increase in varieties. According to American IQVIA statistics, among the 43 products that the company sells in the United States, 24 products have the top three market share. Considering the cycle from production to the realization of terminal sales in the United States, we expect the preparation export business to continue to develop in the second half of the year. 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 fundamentals are clearly reversed, the valuation is appropriate, and the "push" rating is maintained. In terms of business and revenue, we believe that the growth trend 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, but taking into account the increase in R & D expenditure and some consolidation of pharmaceutical biopharmaceutical assets in the second half of the year, we safely estimate that the company will deduct 10-1.1 billion yuan in non-net profit for 22 years, and expect to maintain 25% + growth in 23 and 24 years. Taking into account the company's clear fundamental reversal, we adjusted the company's 2022-2024 net profit forecast to 10.02,13.14 and 1.664 billion yuan (the previous value was 9.20,12.11 and 1.578 billion yuan in 22-24 years), with an increase of 105.5%, 31.2% and 26.6% respectively (0.62,0.82,1.06 yuan in 22-24 years). The current stock price corresponds to the PE of 30, 23 and 18 times from 2022 to 2024, respectively. 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 35.20 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.