Baicheng medicine (301096)
Investment logic
The market scale of the global cro industry continues to expand, and China’s favorable policies usher in a golden development period. As the cost of drug R & D continues to rise, outsourcing can reduce costs and increase efficiency. Therefore, the penetration rate of global CrO (pharmaceutical R & D outsourcing) continues to increase and the market scale continues to expand. It is estimated that the global cro market scale will reach US $95.2 billion in 2023, with a CAGR of 10.3%. At the same time, the intensive introduction of favorable policies in China has promoted the rapid growth of China’s cro industry. It is expected that the scale of China’s cro market will grow to US $21.4 billion in 2023.
The consistency evaluation resonates with the MAH system, and China’s generic drug cro industry is booming. At present, generic drugs are still the leading force in the China Meheco Group Co.Ltd(600056) market. 90% of the more than 4000 API and preparation manufacturing enterprises are generic drugs, and more than 95% of the nearly 170000 drug batch numbers are generic drugs. In addition, the introduction of generic drug consistency evaluation and MAH (listing permit holder) system has greatly stimulated the enthusiasm of many small and medium-sized pharmaceutical investment enterprises for generic drug R & D and promoted the continuous expansion of generic drug cro industry.
Entrusted R & D + achievement transformation, double track development, full new orders, and high performance growth. Baicheng pharmaceutical is a cro enterprise with pharmaceutical research as the core. It adopts the dual development strategy of “entrusted R & D service + R & D technical achievement transformation”. Its business covers the main links of drug R & D, such as drug discovery, pharmaceutical research, clinical research, registration application and so on. In 2021, the company achieved an operating revenue of RMB 374 million, a year-on-year increase of 80.61%, a net profit attributable to the parent company of RMB 111 million, a year-on-year increase of 93.52%, newly signed orders of RMB 808 million, a year-on-year increase of about 165%, and orders on hand of RMB 893 million. The newly signed and on-hand orders are full, laying a foundation for the high growth of future performance.
Raise investment projects, increase the layout of R & D capacity and continuously improve the core competitiveness. The company’s IPO raised 651 million yuan, which will be mainly used to invest in the “headquarters and R & D center project of Hangzhou Baicheng Pharmaceutical Technology Co., Ltd.” after deducting the issuance expenses. After the completion of the project, it will further improve the company’s independent innovation ability, expand the company’s main business scale and enhance the company’s future development potential.
Profit forecast and investment suggestions
We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 186 / 301 / 460 million yuan respectively, with a year-on-year increase of 67.67% / 61.67% / 52.89%. The predicted net profit attributable to the parent company in 2022 will be 58 times PE, corresponding to the target price of 99.88 yuan / share, covered for the first time and given a “buy rating”.
Risk tips
The risk of lifting the ban, the risk of slowing down or reducing the growth of generic drug consistency evaluation business, the risk of covid-19 virus epidemic, the risk of drug R & D failure, and the risk of industrial regulatory policies.
