\u3000\u3 Shengda Resources Co.Ltd(000603) 456 Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) )
Event: the company released the annual report of 2021 and the first quarterly report of 2022: in 2021, the company achieved a revenue of 4.063 billion yuan, a year-on-year increase of 53.48%; The net profit attributable to the parent company was 634 million yuan, a year-on-year increase of 66.56%; The net profit deducted from non parent company was 573 million yuan, with a year-on-year increase of 77.86%. In the first quarter of 2022, the company achieved a revenue of 1.374 billion yuan, a year-on-year increase of 60.46%; The net profit attributable to the parent company was 208million yuan, a year-on-year increase of 120.13%; The net profit deducted from non parent company was 196 million yuan, with a year-on-year increase of 102.28%.
Event comments:
Cdmo business maintained high growth, driving the company’s overall performance. In 2021, the company realized an operating revenue of 4.063 billion yuan, of which the sales revenue of API and intermediate business was 1.310 billion yuan, a year-on-year increase of 16.30%; The sales revenue of cdmo business was 2.311 billion yuan, a year-on-year increase of 78.67%, accounting for 57% of the revenue; Other business income was 442 million yuan, a year-on-year increase of 94.71%. The rapid growth of the company’s operating revenue is mainly driven by the rapid growth of cdmo business.
The customer pool of cdmo business continues to expand, and the pipeline structure of funnel project is further optimized. 1) In 2021, the company’s customer pool continued to expand, reaching more than 800 customers worldwide. The company’s customers include Novartis, Roche, zoetis, Gilead, first Sangong and other international well-known pharmaceutical enterprises, as well as Betta Pharmaceuticals Co.Ltd(300558) , Hutchison Whampoa, Shanghai Allist Pharmaceuticals Co.Ltd(688578) , Haihe biology, LVYE pharmaceutical, Hualing pharmaceutical and other Chinese well-known innovative drug companies. It is one of the most trusted partners of global innovative drug R & D enterprises. Under the trend that global outsourcing is gradually transferred to China, the company continues to promote the strategy of “deepening” major customers and “expanding” emerging customers. In 2021, the penetration rate of project pipelines between the company and large pharmaceutical companies in Europe and America was further improved, the cooperation was deepened, and the orders and projects increased steadily; The listed projects served by the company continued to be stable and large-scale, and the project income increased steadily in the commercialization stage; As the company continues to strengthen the breadth and depth of cooperation in serving Chinese innovative drug companies, the number of new drug NDA projects of some customers continues to increase, and China’s business has entered a period of rapid growth. 2) In 2021, the company’s cdmo business orders achieved rapid growth, successfully promoted one NDA new drug project of customers to pass the on-site verification of nmpa API, and one NDA project was approved for listing. The number of new drug projects submitted by the company to NDA has increased significantly, which will continue to boost the rapid growth of the company’s business. By the end of 2021, among the projects undertaken by the company, 20 have been listed, 49 are in phase III clinical projects, and 582 are in phase I and phase II clinical trials, with an increase of 4 / 9 / 144 projects respectively year-on-year. The pipeline structure of the project has been continuously optimized, covering the treatment fields of anti-tumor, anti heart failure, anti-virus, central nervous system, cardio cerebrovascular and so on. 3) The commercialized large varieties continued to increase in large quantities, driving the performance growth of subsidiaries. According to Novartis annual report, in 2021, the sales volume of Novartis was USD 3.548 billion, with a year-on-year increase of 42.09%. In June 2021, the State Drug Administration approved the use of nositol in the treatment of essential hypertension, further opening up its space in the Chinese market; Nilotinib sales reached US $2.06 billion, a year-on-year increase of 5.21%. Kisquali’s sales volume was USD 937 million, with a year-on-year increase of 36.39%; Suzhou Ruibo achieved a year-on-year increase of RMB 11.51 billion, with a year-on-year net profit of RMB 11.51 billion.
API business has developed steadily, and its subsidiary Jiangsu Ruike has made substantial profits. In 2021, the company’s API business further achieved a breakthrough upgrade, and the newly developed hypoglycemic products helped the customer’s preparation products to be approved for listing in Europe. In 2021, the subsidiary Jiangsu Ruike achieved a sales revenue of 540 million yuan (including some cdmo business revenue) and a net profit of 794056 million yuan. Jiangsu Ruike has made a profit for the first time since it was controlled by the company in 2015, which has made a positive contribution to the company’s performance.
The core technology platform continuously enables customers to develop new drugs. At present, the company has built many leading technology platforms, including chiral catalysis technology, continuous technology application research platform, fluorine chemistry technology, enzyme catalysis technology, polypeptide technology research platform, etc. through a large number of project practice and successful technology transformation, the company can effectively solve the process problems and technical challenges faced by customers and provide industry-leading technical solutions for customer projects. Among them, the polypeptide technology platform is a new technology platform built by the company in 2021. The core members of the team have more than 15 years of polypeptide R & D and management experience. In recent years, peptide drugs have been particularly prominent in rare diseases, chronic diseases, especially diabetes, cancer and intestinal diseases. The polypeptide technology platform of the company has undertaken the customized peptide and polypeptide new drug ind entrusted R & D business of several new drug research and innovation companies.
Accelerate the construction of cdmo capacity to meet the growing demand for orders. The company accelerates the construction of cdmo capacity through the combination of “internal new construction and external M & a”. In 2021, the construction of Ruibo Taizhou new base has been started, and the project is in orderly progress at present; At the same time, the company has completed the acquisition of 100% equity of Taihua Hangzhou and 51% equity of Nanjing kangchuanji Pharmaceutical Co., Ltd. under Teva group, further expanded the undertaking capacity of cdmo business, realized the multi regional production capacity layout of the company, rapidly improved the R & D capacity of small molecule innovative drugs of the company, and combined with the preparation commercial production base of Siwei pharmaceutical, a wholly-owned subsidiary of the company, The company is fully equipped with the one-stop service undertaking ability of small molecule APIs and preparations from CMC research and development to commercial production.
Strive to build an excellent integrated CMO manufacturing platform for APIs and preparations. In 2021, the company will continue to practice the concept of green pharmaceutical, fully comply with regulations and driven by innovation, and build a highly competitive API and preparation production platform and a reliable supply chain ecosystem; At the same time, combined with the comprehensive application of advanced technologies such as biocatalysis, continuous flow chemistry, membrane separation and computer engineering simulation, so as to continuously maintain and improve the advantages of production technology; We will continue to promote technology, equipment, service and management innovation to maintain efficient production and operation, strive to build an excellent integrated CMO manufacturing platform for APIs and preparations, and provide one-stop services for the sustainable supply of drugs to customers and patients. In 2021, the company has undertaken a number of high-quality CMO projects, and 17 generic drug preparation projects are in different research and development stages. Among them, the preparation product aed-02 sustained-release tablets anda is still under FDA approval, and the nmpa listing application was submitted in July 2021; The preparation product t2dm-02 sustained release tablets has obtained the nmpa listing application acceptance notice.
The company’s comprehensive gross profit margin decreased and the net profit margin on sales increased. In 2021, the company’s comprehensive gross profit margin was 33.33%, a year-on-year decrease of 4.18pct, of which the gross profit margin of cdmo business decreased by 2.76pct and API business decreased by 5.51pct, mainly due to the increase of sales cost rate, which increased by 4.18pct year-on-year. The company’s net profit margin on sales was 15.61%, with a year-on-year increase of 1.26pct, mainly due to the sharp decline in the rate of administrative expenses and financial expenses, with a year-on-year decrease of 3.58pct and 2.54pct respectively.
The performance in the first quarter of 2022 exceeded expectations. The rapid growth of the company’s performance in the first quarter of 2022 mainly benefited from the strong growth of cdmo business. The main reasons are as follows: 1) the company has deeply expanded customers and product pipelines, further improved its R & D and product delivery capacity, and the growth momentum of new business orders and projects is fast; 2) The listed projects served by the company continued to be stable and large-scale, and the project revenue increased steadily in the commercialization stage.
Investment suggestions:
We expect that the net profit attributable to the parent company from 2022 to 2024 will be 902 / 1240 / 1678 million yuan respectively, and the EPS will be 1.08 / 1.49/2.02 yuan respectively. The current share price corresponds to 41 / 30 / 22 times of PE. Considering the remarkable achievements in the breadth and depth of cdmo business customer expansion, the rapid growth of the number of projects, the continuous transformation of funnel-shaped project pipelines to the back end, the continuous and stable volume of service listed projects, the steady increase of project revenue in the commercialization stage, and the continuous growth of sales volume of some large commercialized varieties benefiting from the volume of the terminal market; API business continues to develop healthily, and Jiangsu Ruike has made a significant contribution to its performance; Steady progress was made in the integration of raw materials and preparations; We maintain its “buy” rating.
Risk tips:
The heavy volume of key cdmo orders is less than expected; Price fluctuation risk of APIs and intermediates; Environmental protection policy risk; Safety production risk.
