\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 39 Apeloa Pharmaceutical Co.Ltd(000739) )
Key investment points
Performance: steady growth and structural adjustment
The company released its 2021 annual report. The company’s revenue in 2021 was 8.94 billion yuan, a year-on-year increase of 13.5%; The net profit attributable to the parent company was 956 million yuan, a year-on-year increase of 17%; The net profit margin attributable to the parent company was 10.7%, with a year-on-year increase of 0.32pct. In a single quarter, the revenue of 2021q4 was 2.54 billion yuan, a year-on-year increase of 22.9%; The net profit attributable to the parent company was 190 million yuan, a year-on-year increase of 3.7%. We believe that the company’s performance in 2021 is in line with our own expectations.
From the perspective of business departments, in 2021:
① the revenue of API was 6.55 billion yuan, with a year-on-year increase of 10.4%, accounting for 73.2%; The gross profit margin was 19.2%, a year-on-year decrease of 2.8pct.
② cdmo revenue was 1.39 billion yuan, with a year-on-year increase of 32.1%, accounting for 15.6%; The gross profit margin increased by 43.5t% year-on-year.
③ the income from preparations was 870 million yuan, with a year-on-year increase of 14.1%, accounting for 9.7%; The gross profit margin was 57.4%, basically unchanged year-on-year.
Performance comments: cdmo and preparation business contributed to the growth of gross profit and the improvement of profitability
Growth capability: the marginal contribution of cdmo is improved. According to the company’s annual report, in the contribution of revenue growth in 2021, the revenue of APIs and intermediates accounted for 57.9%, cdmo accounted for 31.9% and preparations accounted for 10.1%. We believe that the revenue growth of the company in 2021 comes from the increase in the number of cdmo commercialized projects + services and the continuous volume of centralized procurement preparations. The growth of API business is disturbed by the demand for antibiotic APIs and intermediates under the global epidemic. We expect the marginal improvement in 2022.
Profitability: the net profit margin is expected to maintain an upward trend. According to the company’s annual report, cdmo accounted for 95.1% and preparations accounted for 35.2% of the contribution to the growth of gross profit in 2021. The API and intermediate business dragged down the growth of gross profit, and the overall gross profit margin decreased by 1.15pct in 2021. We believe that under the pressure of chemical price rise since the second half of 2021, the gross profit margin of API and intermediate business has been under pressure, which has dragged down the growth of overall gross profit; Under the upgrading of project structure, the gross profit margin of cdmo increased, which significantly contributed to the growth of gross profit. In terms of expense ratio, in 2021, the sales expense ratio decreased by 2.2pct and the R & D expense ratio increased by 0.6pct. We believe that with the increase of the proportion of centralized purchase preparation revenue, the overall sales expense ratio of the company still has room to decline; Considering the company’s continuous investment in R & D and high-end manufacturing capacity, the R & D expense rate is expected to remain at a high level. Under the background of the adjustment of the company’s revenue structure and the upgrading of the project structure, we expect that the net profit margin may maintain an upward trend in 2022.
Viewpoint: strong scientific and technological research and development, high standard compliance, low-cost manufacturing, optimistic about the marginal change of investment. At the current node, the development stage and marginal change of the company: acceleration of capital expenditure, upgrading of project structure and switching of growth momentum. From the annual report of 2021, we noticed: ① the acceleration of capital expenditure: in 2021, the company’s capital expenditure (cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets) was 700 million yuan, reaching the highest value since listing; By the end of 2021, 710 million yuan of projects under construction and 1.93 billion yuan of fixed assets were under construction. From the details of projects under construction, the completion rate of projects such as plokangyu, PLO biology, Hanxing medicine and plod Pradesh was 70%. We expect that capital expenditure projects starting in 2020 are expected to gradually contribute profits from 2023 to 2024. From the short-term perspective, we can see the rhythm of capacity delivery. According to the company’s annual report, “during the reporting period, the company’s first commercial production line of fluid chemistry, the first cdmo modular flexible production workshop and a high-standard automatic API workshop were successively completed and put into operation”. In terms of R & D capacity, “The new cdmo R & D building in Shanghai was put into use at the end of February 2022, and the new cdmo R & D building in Hengdian is also under construction and is expected to be put into use within the year”, “the company’s biological R & D experimental center was put into use at the beginning of 2021” and “the company’s analysis and testing center was officially put into use at the end of 2021”; In terms of preparation production capacity, “the phase II expansion project of preparation workshop 7 plans to increase the production capacity from the original 1 billion tablets / year to 3 billion tablets / year, and the new sterile powder injection workshop project with a production capacity of 100 million tubes / year is also under construction, which is planned to be put into use within the year”. We are optimistic about the upgrading of the company’s supply capacity with accelerated capital expenditure and gradually put down production capacity, so as to support medium – and long-term sustainable growth.
② upgrading of project structure: in 2021, the turnover rate of the company’s fixed assets reached the highest value since 2012 (4.76, a year-on-year increase of 12.5%). We believe that the improvement of the turnover rate of the company’s fixed assets comes from the increase of project added value and the deepening of industrial chain cooperation. (1) Increase in added value of cdmo project: according to the company’s annual report, in 2021, the sales volume of “contract R & D and production services” increased by 10.7% year-on-year, the sales volume increased by 32.1% year-on-year, and the gross profit margin increased, which reflects the increase in the unit price and added value of cdmo project under the upgrading of manufacturing capacity of “miniaturization, continuity, informatization and intelligence”. (2) Deepening industrial chain cooperation: in the API business, veterinary drugs carry out strategic cooperation with UL in technology, production and market; In cdmo business, the number of API cooperation projects increased by 50%, the customer stickiness increased, and the preparation cdmo expanded. We believe that the industrial chain cooperation is deepened to improve the development ceiling and net profit margin. We are optimistic about the continuous improvement of operating efficiency under the goal of “making refined raw materials, strengthening cdmo and making excellent preparations”. ③ Growth momentum switching: we are concerned about the increase in the proportion of high profitability revenue of the company in 2021 (we estimate that the profit margin of cdmo is higher than that of API business, and the proportion of revenue increased by 2.2pct year-on-year in 2021), and the change in growth momentum of preparations. We estimate that the profitability of the company’s centralized procurement of winning preparations is higher than that of the stock preparation business (the gross profit margin of preparations is stable, but the overall sales expense rate of the company has decreased by 2.2pct year-on-year). At the same time, the winning varieties have increased rapidly (“the sales of levetiracetam tablets maintained a rapid growth during the year, with a year-on-year increase of more than 60%, becoming another variety with single product sales of more than 100 million yuan”), We look forward to the performance of metoprolol succinate sustained-release tablets, cefixime granules and other varieties of the company in the seventh round of centralized mining in 2022.
Profit forecast and valuation
We expect the company’s EPS to be 1.04/1.35/1.75 yuan / share from 2022 to 2024, and the closing price on March 9, 2022 corresponds to 28 times PE in 2022. We believe that the company is a platform API company that ushers in an inflection point in capital expenditure and product registration. Combined with the company’s production rhythm, capital expenditure and personnel expansion plan from 2022 to 2024, we expect cdmo business to continue to grow fast; Under the condition of accelerated application of preparations + capacity reserve, we are optimistic about the potential profit elasticity after winning the bid for centralized purchase of preparations. Under the company’s strategy of “strong technology R & D, high standard compliance and low-cost manufacturing”, we believe that the company’s growth sustainability and net profit margin may exceed expectations and maintain the “buy” rating.
Risk tips
Production safety accidents and quality risks; Risk of core preparation varieties falling short of standard or sales volume falling short of expectations; Exchange rate fluctuation risk; Order delivery volatility risk; Risk of changes in pharmaceutical regulatory policies.
