Zhejiang Starry Pharmaceutical Co.Ltd(603520) (603520)
Key investment points
Contrast agent raw materials have established a global leading position. Global companies of iodine contrast agents and raw materials have a high degree of coincidence and integration, among which gehealthcare accounts for the largest market share of global sales of contrast agents and raw materials. Zhejiang Starry Pharmaceutical Co.Ltd(603520) has been deeply engaged in the industry for many years and has been supplying industry leaders Jiangsu Hengrui Medicine Co.Ltd(600276) and Zhengda Tianqing for a long time. In 2018, it acquired Poseidon pharmaceutical, the second largest production capacity in China, and set to double its production capacity in 2020. In recent years, the four international leaders have little new capacity to increase production. It is difficult for several other new manufacturers in China to smoothly enter their supply chain. However, Zhejiang Starry Pharmaceutical Co.Ltd(603520) has more new capacity and excellent technology and products. International giants may shift from competition to cooperation. On the one hand, they have laid a long-term pattern of the industry and improved enterprise valuation. On the other hand, the company’s new capacity has been fully digested. We expect that the company’s API sales (including self use) from 2020 to 2022 will be 960, 1400 and 2000 tons respectively, the price and gross profit margin will remain stable or increase, and the revenue side is expected to have a compound growth of more than 40%.
The performance of preparation force Q4 continued to accelerate. In 2020, it will take time for Xianju factory to recover its production capacity. Q3 will purchase and stock goods from China in 2021. The company’s performance in the first few quarters of 2021 is not ideal. Starting from Q4 of 2021, iohexol and ioxamol injections won the bid in June 2021 began to implement the standard. The agreed amount is 2 million bottles per year, which is more than twice the quantitative amount according to the first four rounds of national collection and test. We assume that the annual volume of Q4 in 2021 and 2022 will be 500000 and 4 million bottles respectively, the new revenue will be 50 million yuan and 400 million yuan respectively, and the new profit will be about 10 million and 80 million yuan, resulting in significant profit increment. At the same time, considering the nearly doubled capacity release of APIs and intermediates, we expect that the company’s performance will continue to accelerate from Q4 in 2021. The net profit attributable to the parent company in Q4 in 2021 is about 110 million yuan, with a year-on-year increase of more than 150% in a single quarter.
In the long run, the global market share of the company’s API has room to double and improve. Chinese iodine contrast agent preparation The market share of sales (including iohexol, iodopanol, iodixanol, iodofol, iodopropamine, etc.) is expected to reach 40% in 2023. There is a market of 16 billion yuan before centralized procurement. Assuming that the price of centralized procurement is reduced by 60%, regardless of the increase of China’s preparation revenue of 2.5-3 billion yuan, corresponding to a profit of 500-600 million yuan; the sales of APIs and intermediates are more than three times higher than that in 2020, corresponding to a profit of 700 million yuan, with a total profit Runchao 1.2 billion yuan. Overseas exports of preparations have also made breakthroughs in South Asia, South America and other regions, which are not expected to be included.
Profit forecast and investment rating: we predict that the operating revenue of the company from 2021 to 2023 will be RMB 1.920/27.14/3288 billion, with a year-on-year increase of 40.4% / 41.4% / 21.1%, the net profit attributable to the parent company will be RMB 345 / 554 / 724 million, with a year-on-year increase of 44.4% / 60.8% / 30.7%, EPS will be RMB 1.41/2.26/2.96 respectively, and the PE corresponding to the current stock price is 45.48/28.27/21.64 times. As a leading enterprise of iodine contrast agent in China, The integration of API + preparation is accelerated, the centralized purchase opens the space for large-scale preparation, and the superimposed API production capacity is gradually implemented. The company has great performance growth potential and is given a “buy” rating for the first time.
Risk tips: EHS risk; Risk of intensified industry competition; Risk of rising API prices; Risk that the production capacity is lower than expected; Risk of new technology substitution; Risks related to senior management changes, etc.
