\u3000\u3 Shengda Resources Co.Ltd(000603) 456 Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) )
Key investment points:
Starting with API and successfully transforming cdmo
Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) founded in 1998, it is one of the major suppliers of raw materials such as carbamazepine, oxcarbazepine, ketoprofen and gliclazide in the world. In 2008, the company began to deploy cdmo business and realized rapid expansion of business through self construction or acquisition of R & D institutions and production bases. In 2020, cdmo revenue exceeded the characteristic API and intermediate business for the first time, successfully realizing strategic transformation.
The division of labor in the industrial chain + the increase of penetration rate, China’s cdmo industry has a high outlook
The market scale of global chemical medicine cdmo (customized outsourcing of pharmaceutical contracts) is US $37.5 billion in 2020. With the increase of R & D investment of pharmaceutical enterprises, the acceleration of cost optimization, the division of labor in the industrial chain and the increase of CMO / cdmo demand, the market scale is expected to reach US $60.6 billion by 2025, with CAGR of 10%. The technical level of China’s high-quality cdmo enterprises has been continuously improved and gradually recognized by major customers. They have advantages in manpower and production cost, and are expected to obtain more orders and higher market share.
API: high volume of advantageous varieties + increase of potential new varieties, which is expected to grow steadily
Jiangsu Ruike, the company’s main API factory, will resume production in 2020 to solve the problem of production capacity. Many characteristic APIs and intermediates are firmly in the forefront of the global market share of single variety characteristic APIs and intermediates, and the advantageous products are expected to continue to be in large quantities. The company always adheres to innovation driven, continuously promotes production process and technological innovation, enriches product dimensions, and ensures the continuous supplement and reserve of product lines. With the large volume of advantageous varieties and the increase of potential generic drugs in the follow-up, the API business is expected to maintain an increase of about 20%.
Cdmo: the order structure is optimized, the production capacity is sufficient, and it is expected to grow rapidly
From the early stage (H1 + 2021), the number of orders for subsequent projects increased from 48 in the early stage (H1 + 2021 in the second stage). The acquisition of Suzhou Novartis and Hangzhou Taihua factories, the resumption of production of Jiangsu Ruike, and the company’s cdmo capacity is sufficient. The cooperation with entresto, a cardiovascular new drug of Novartis, is a milestone in the development of the company’s cdmo business. Entresto is expected to become a “blockbuster”. Through the cooperation promotion of similar large orders, the company’s cdmo business is expected to continue to grow rapidly.
Earnings forecast, valuation and rating
We expect that the company’s EPS from 2021 to 2023 will be 0.78, 1.05 and 1.39 yuan / share respectively, and the corresponding PE will be 57, 42 and 32x respectively. In view of the continuous optimization of the company’s “cdmo” structure, we give the company a corresponding valuation of 22.55 times of the company’s first purchase price, and give us a comparable rating of “55 times the company’s first purchase price” according to the company’s “cdmo” structure.
Risk tips
Rising prices of raw materials, failure of new drug research and development by customers, life cycle replacement of main innovative drugs served, exchange rate fluctuations and stricter environmental protection
