Incidents:
1) The company released the first quarter report of 2023, achieving revenue of 2,778 million yuan, -6.63% year on year; net profit of 857 million yuan, -24.71% year on year; net profit of non-return mother was 854 million yuan, -23.93% year on year; net operating cash flow was 937 million yuan, +55.21% year on year; EPS (basic) 2.13 yuan. The performance fell slightly short of market expectations.
2) The company and the controlling shareholder Chaoda Group signed an “Equity Transfer Agreement with Effective Conditions” on April 17, 2023. The company plans to sell 100% of Gaoxin Real Estate's shares. The corresponding price is RMB 2419.8499 million. Chaoda Group plans to raise capital for this acquisition by issuing exchangeable corporate bonds. After the transaction is completed, Gaoxin Real Estate will no longer be included in the consolidated scope of the company's financial statements.
Comment:
Baike Biotech has clearly recovered, with many factors affecting current performance: in Q1 2023, subsidiary Jinsai Pharmaceutical achieved revenue of 2,353 million yuan, -11% year on year, net profit of 895 million yuan, -26% year on year; subsidiary Baike Biotech achieved revenue of 179 million yuan, +30% year on year, and net profit of 18 million yuan, +6% year on year; subsidiary Huakang Pharmaceutical achieved revenue of 165 million yuan, -3% year on year, the same as the previous year; the subsidiary Hi-Tech Real Estate achieved revenue of 0.71 billion yuan, -58% year on year , achieving net profit of 0.1 million yuan, or -95% year-on-year. The negative revenue growth of Kinsey and Huakang is estimated to have been affected by the COVID-19 and influenza epidemic in the first quarter. Daily sales activities were impacted to a certain extent, and Kinsey Pharmaceutical made emergency shipments of more than 600 million yuan to the country in March 2022 to ensure market supply under special circumstances, leading to a higher base. Due to restrictions on routine vaccination activities due to the severe COVID-19 pandemic in the same period last year, 100g Biotech achieved a strong recovery in 2023Q1 revenue. The decline in the company's profit was greater than revenue. The influencing factors include: 1) operating costs increased 105 million yuan over the same period last year, an increase of 45.76%. The main reason was the increase in settlement revenue of Gaoxin Real Estate 2023Q1 after deducting intra-group transactions and the increase in process change expenses of subsidiary pharmaceutical companies; 2) R&D expenses increased 100 million yuan over the same period last year, an increase of 42.81%, mainly due to the increase in R&D investment of affiliated pharmaceutical companies. The combination of the above short-term factors led to a negative increase in the company's net profit of 2023Q1. With the normal development of subsequent daily business activities, the company's net profit to the mother will resume a steady growth trend.
The sale of the real estate business further focuses on the biomedical business: by selling 100% of the shares in high-tech real estate, the company further focuses on the development of the core biomedical business, which will help the company further optimize its balance and liability structure and enhance the company's sustainable development capabilities. By the end of 2022, Gaoxin Real Estate had a capital loan balance of 2,712 billion yuan from Changchun Hi-Tech's daily operations. After the transaction is completed, Gaoxin Real Estate will repay the principal amount and corresponding interest over three years based on the balance of the funds loaned by Daily Gaoxin Real Estate to Changchun Hi-Tech as of equity delivery as confirmed by the parties to this transaction.
Self-produced PEG was approved, which is conducive to raw material supply assurance and cost optimization: In April 2023, Jinsai Pharmaceutical received the “Drug Supplement Application Approval Notice” approved and issued by the National Drug Administration and the National Drug Administration, which approved “Jin Saizeng”'s supplementary application to add Jinpaiger from Jilin Province as a supplier of methoxy polyethylene glycol derivatives (PEG) as a raw material for raw liquid production. Before this application is approved, Kinsai Pharmaceutical needs to outsource PEG from a single supplier. This approval allows Jinsai Pharmaceutical's self-produced PEG to be used in the production of polyethylene glycol recombinant human growth hormone injections, which is conducive to raw material supply assurance and cost optimization.
Profit forecasting, valuation and ratings: Maintain the forecast that the net profit returned to the mother from 2023 to 2025 was 52.01/64.24/7607 billion yuan, +25.64%/23.51%/18.41% compared to the previous year. The current price corresponding to PE was 13/11/9 times, respectively, maintaining the “buy” rating.
Risk warning: Development and promotion of new products fell short of expectations, and competition for growth hormone intensified.