\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 63 Porton Pharma Solutions Ltd(300363) )
Key investment points
Annual report / quarterly report: large orders drive high growth, and the profitability of 2022q1 is higher than expected
On March 25, 2022, Porton Pharma Solutions Ltd(300363) released the annual report of 2021, with operating revenue of RMB 3.105 billion and yoy of RMB 4.9 billion 87%, the net profit attributable to the parent company after deducting non-profit is 503 million, yoy74 million 42%。 In 2021, the gross profit margin was 41.36% and the net profit margin was 15.32%, which was basically the same year on year. The cash flow from operating activities was 480 million yuan, yoy-4.8%.
Forecast for the first quarter of 2022: Q1 company is expected to realize revenue of 1.357-1.466 billion yuan, yoy 150% - 170%, net profit of 320340 million yuan after deduction of non parent company, yoy 330350%, corresponding to net interest rate of 22% - 25%. Driven by scale effect and large orders with high added value, Q1 company has increased by 6-9pct year-on-year.
Sub sector: funnel is gradually formed, and the diversion growth of each sector is obvious
1. API cdmo: product upgrading and funnel effect
In 2021, the revenue of small molecules was 3.069 billion, yoy 51%, of which API 290 million, yoy 55%, accounting for 9.34% of the total revenue. The service structure was further upgraded.
The early clinical revenue was 972 million, yoy 72.53%, gross profit margin 48.07%, year-on-year + 3.74 PCT, which is still an important driving force driving the growth of small molecule income and profitability.
In the late stage of clinical and commercialization, it was 2.039 billion yuan, yoy 37.68%, gross profit margin 42.02%, year-on-year + 1.27pct, and the profitability continued to improve under the improvement of products and customers.
It is worth noting that 20 projects of the company entered the next development stage in 2021, and 2 innovative drugs (4 projects) served were approved for listing, and the funnel effect gradually appeared.
2 J-star: enhanced diversion effect, or become an independent base in the United States under the improvement of production capacity
J-star achieved a revenue of 230 million yuan in 2021, representing 8% of yoy. It brought 60 projects to the Chinese team, mainly the early projects of North American biotech customers. In 2022, the company will increase the expansion of J-star laboratory and pilot plant project. We believe that J-star will gradually become an independent base of the company in the United States. On the basis of diversion, with the increase of production capacity, the company will independently undertake more overseas projects.
3. Improve cdmo, and sign new CGO orders
Cdmo of gene cell therapy achieved 13.87 million yuan in revenue in 2021, with 89.7% of yoy. The newly signed orders were about 130 million yuan, with 132% of yoy, including 27 new projects and 15 new customers. The total number of employees reached 294, yoy 216%, including the appointment of Dr. Wang Yangzhou as CEO. We believe that the company may accelerate the expansion of new business capacity and personnel under the increase of large orders in 2022, and we are optimistic about the gradual establishment of the first mover advantage of CGT cdmo.
4. Cdmo: zero breakthrough, and the significance of end-to-end service appears
The revenue of the preparation in 2021 was RMB 2016 million, achieving a breakthrough of zero. The newly signed orders were RMB 71.13 million, accounting for 274% of yoy. Among them, there are 31 projects under research, 23 new customers and 156 employees, with yoy accounting for 164%. It is worth noting that the number of "DS + DP" collaborative projects has reached 13, further opening up the service chain. Q4 in 2022, with the phase I project of preparation production base in Liangjiang New Area of Chongqing put into operation, the capacity circle of corporate cdmo business will be further expanded, which is expected to continue to promote the further implementation of the layout of "DS + DP" end-to-end service platform.
Financial changes: the impact of large orders is gradually emerging, and capital expenditure has accelerated significantly
With the fulfillment of Q1 and 2024 orders, our financial performance is gradually affected.
1. Under the influence of large orders, the added value of accounts receivable, inventory, accounts payable and bills increased significantly
The added value of the company's 2021 Q4 accounts receivable was 288 million yuan, 9.62 times that of the same period in 2020; The added value of inventories was 131 million, 5.31 times that of the same period in 2020, and the added value of accounts payable and notes was 269 million yuan, 18.12 times that of the same period in 2020, which had a significant impact on operating cash flow. We believe that this may be related to the gradual fulfillment of large orders, and the growth of the company's cash flow may fluctuate in 2022.
2. The profitability of 2022q1 was significantly improved, supporting the increase of investment from multiple angles throughout the year
In 2022q1, on the basis of new business losses, the net interest rate was 22% - 25%, 3-6pct higher than the highest level in history. We assume that the loss of new business is basically the same as that of Q4, and the small molecule net interest rate reaches 24% - 28%, which is significantly higher than the historical and peer level. We believe that large orders may be prominent in output value and profitability. Looking forward to the whole year of 2022, we believe that the company may take this opportunity to increase investment in production capacity, technology and personnel in the next three quarters. We predict that the annual profit level may rise steadily, basically maintained at 17-20%
3. The added value of construction in progress is the highest in history, and the company has entered the stage of comprehensive acceleration of capital expenditure
In 2021q4, the added value of projects under construction in a single quarter was 144 million, the highest since its listing in 2014. In the annual report, the company said that the capital expenditure accelerated in 2022, with an estimated expenditure of 1.7 billion yuan, mainly including Chongqing Changshou API cdmo 301 workshop project, Jiangxi Fengxin API cdmo phase II project, Hubei API cdmo plant (Yuyang pharmaceutical) phase I reconstruction project, Shanghai Fengxian API cdmo plant (Kaihui pharmaceutical) phase I reconstruction project, Shanghai Minhang API cdmo new R & D center project Chongqing soil and water preparation cdmo Plant Phase I project, Suzhou Sangtian Island gene cell therapy cdmo phase II project, J-star laboratory expansion and pilot plant project in New Jersey. The current fixed assets of the company are 1.748 billion yuan. We expect that the fixed assets are expected to double in 2-3 years with the gradual conversion of capital expenditure to fixed assets.
We believe that the company has entered the stage of comprehensive acceleration of capital expenditure, which will effectively support the long-term development of the company. We are optimistic about new boten under large orders.
Profit forecast and valuation
We expect that the company's EPS from 2022 to 2024 will be 2.31, 3.26 and 4.33 yuan / share, corresponding to the closing price on March 25, 2022, and the PE in 2022 will be 41 times, maintaining the "buy" rating.
Risk tips
The volatility of the impact of depreciation of new fixed assets, equity incentive and exchange on apparent performance; Volatility of profit cycle of new business; The prosperity of investment and financing of innovative drugs has declined.
