Porton Pharma Solutions Ltd(300363) production capacity and efficiency are both improved, and research and production collaboration leads to accelerated development

\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 63 Porton Pharma Solutions Ltd(300363) )

Porton Pharma Solutions Ltd(300363) issued an announcement on the acquisition of 100% equity of Kaihui Pharmaceutical (Shanghai) Co., Ltd. In order to match the rapid growth of pre clinical and early clinical (CRO) business development needs, the company plans to acquire 100% equity of Kaihui Pharmaceutical (Shanghai) Co., Ltd. held by Shanghai Ruizhi Chemical Research Co., Ltd. with RMB 266 million in cash. After the completion of the transaction, the company will hold 100% equity of Kaihui pharmaceutical, which will become a wholly-owned subsidiary of the company and be included in the scope of the company’s consolidated financial statements.

Cro’s production capacity is further expanded, and research and production cooperate to expand China’s business territory.

Kaihui pharmaceutical was founded in 2008 and located in Hangzhou Bay Development Zone, Fengxian District, Shanghai. It was a Chempartner Pharmatech Co.Ltd(300149) wholly-owned secondary subsidiary of a GEM listed company before the acquisition. As a global R & D and production service provider of small molecule drugs, Kaihui pharmaceutical is mainly committed to providing customers with process R & D and production services of intermediates and APIs required from preclinical research to various clinical trial stages. At present, due to the transformation of plant and facilities, it is in the state of shutdown. The company will pay in cash in three phases, and all the transaction funds will come from the company’s self raised funds.

Financial situation of Kaihui pharmaceutical: as of November 30, 2021, the operating revenue was 131 million yuan and the net profit was – 84.21 million yuan; In 2020, the operating revenue was 155 million yuan and the net profit was – 27.46 million yuan.

Cro’s production capacity is guaranteed again, and research and production collaboration helps to improve service efficiency. Kaihui pharmaceutical’s existing comprehensive laboratory, kilogram laboratory and pilot workshop can quickly supplement the cro capacity of small molecule drugs, so as to provide guarantee for the company to further expand cro business in preparation for undertaking more potential business opportunities. After this acquisition, the company will optimize and integrate Kaihui pharmaceutical in terms of enterprise operation, personnel arrangement, company system and other aspects, so as to return to work and production as soon as possible, release potential production capacity and enhance value. In the future, Kaihui pharmaceutical will also form a linkage with the company’s Shanghai R & D center, which will help to improve the switching efficiency of the company’s projects from R & D to production, form research and production synergy, and ensure the accelerated development of the company’s performance.

M & A leads to the expansion of customer resources, and the performance is expected to continue to accelerate. As one of the earliest enterprises engaged in small molecule drug R & D and production services in China, Kaihui pharmaceutical has a good customer base and rich experience in project delivery. Its industrial service background will help the company obtain more customer resources and help the company continuously expand its business in China; Rich service experience will help the company further accumulate industry reputation, continue to expand industrial influence, and gradually promote the implementation of end-to-end comprehensive pharmaceutical service platform strategy.

Profit forecast and investment rating. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 521 million yuan, 1178 million yuan and 1.600 billion yuan respectively, with an increase of 60.7%, 125.9% and 35.8% respectively. EPS is 0.96 yuan, 2.16 yuan and 2.94 yuan respectively, and the corresponding PE is 84x, 37x and 27x respectively. The current valuation growth rate highlights the cost performance. Based on the forward-looking layout of gene cell therapy, we think we can give the company a valuation premium. We are optimistic about the long-term development of the company and maintain the “buy” rating.

Risk warning: the risk of continued loss of performance of the acquisition object; Risk of order fluctuation.

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