\u3000\u3 Shengda Resources Co.Ltd(000603) 707 Nanjing King-Friend Biochemical Pharmaceutical Co.Ltd(603707) )
Event: the company released the annual report of 2021 and the first quarterly report of 2022: in 2021, the company achieved a revenue of 3.687 billion yuan, a year-on-year increase of 26.48%; The net profit attributable to the parent company was 1.059 billion yuan, a year-on-year increase of 31.41%; The net profit after deducting non attributable assets was 1.024 billion yuan, a year-on-year increase of 33.47%. In the first quarter of 2022, the company achieved a revenue of 1.177 billion yuan, a year-on-year increase of 33.24%; The net profit attributable to the parent company was 330 million yuan, a year-on-year increase of 20.96%; Net profit deducted from non parent company was 326 million yuan, with a year-on-year increase of 23.68%.
Event comments:
The overall performance of the company was in line with expectations, and the proportion of preparation business was further increased. 1) According to the research report performance forecast released in April 2021, the company’s operating revenue in 2021 is expected to be 3.657 billion yuan and the net profit attributable to the parent company is 1.055 billion yuan. The overall performance of the company meets our expectations. 2) In 2021, the company’s standard heparin API realized an operating revenue of 1.428 billion yuan, accounting for 38.72% of the revenue; The operating revenue of the preparation was 2.13 billion yuan, accounting for 57.79% of the revenue; Cdmo and other products achieved an operating revenue of 123 million yuan, accounting for 3.35% of the revenue. In 2021, the company further actively explored the preparation market outside China, and the preparation revenue increased by 44.52% year-on-year, driving the growth of the company’s overall performance and accounting for 7.22 pct of revenue compared with 2020.
Heparin raw materials increased steadily. As an influential supplier of heparin API in the world, the company has established a long-term and stable supply relationship with major heparin preparation manufacturers in the world, including Pfizer, sagent, Sandoz, etc. As a business providing cash flow, heparin API business achieved stable growth in revenue in 2021, with a year-on-year growth rate of 9.47%, further reducing its proportion in revenue to 38.72%, and the gross profit margin was 52.33%, down 3.81 PCT compared with 2020, mainly due to the rise in the price of crude heparin, the upstream raw material, and the transportation price.
The internationalization of preparations has accelerated, and China’s sales have continued to develop. 1) In recent years, the company has continuously promoted the international sales of preparation products, accumulated rich industry experience and made remarkable achievements in the field of sterile injection. In 2021, the company’s preparation pipeline continued to expand. At present, nearly 30 products have been operated in the U.S. market. The overall sales pipeline and sales scale have entered the ranks of pharmaceutical sales teams above medium level. In 2021, 11 anda applications of the company were approved by FDA. By the end of 2021, the company had 57 drug production approvals in the United States, and has become one of the suppliers with the most complete injection sales pipeline in the United States. At the same time, some of the company’s preparation products have a relatively stable market share in the U.S. market. For example, the market share of benzathine atracurium injection / Bleomycin Injection / gemcitabine injection in the U.S. market is about 30% / 20% / 20% respectively. In 2021, the company’s preparation export business in the United States maintained rapid growth, and the preparation export business accounted for about 60% of the company’s overall preparation business. 2) In terms of China’s preparation business, relying on the registration advantages of both China and the United States, the company seized the market opportunity of injection consistency evaluation. In 2021, the company successively obtained multiple approvals such as bensulfosan atracurium injection, baixiao’an injection, bendamostine hydrochloride injection, milrinone injection, fondaparinux sodium injection, etc. at the same time, many products were listed and sold in China. Among them, baixiaoan injection, as the first product deemed to pass the consistency evaluation in China, has been put on the market, which greatly meets the needs of Chinese leukemia patients for the treatment of chronic myeloid leukemia and allogeneic hematopoietic stem cell transplantation. In addition, bensulfosan atracurium injection and bendamostine hydrochloride for injection successfully won the bid in the fifth batch of countries for centralized drug procurement. Among them, bensulfosan atracurium injection is the first imitation product in China; The company has also won the bid in centralized procurement in many provinces. With the newly listed products of the centralized procurement company, the sales performance in the Chinese market has been rapidly improved. In 2021, the company’s Chinese preparation revenue increased by about 25% year-on-year.
Cdmo business has entered the field of macromolecular biological drugs. In 2021, Jianjin pharmaceutical, a subsidiary of the company, signed a cdmo strategic cooperation agreement with customers on innovative biomacromolecule drugs: providing the whole industry chain service from stock solution to preparation commercialization. The implementation of the project marks the entry of listed companies into the whole industrial chain of macromolecular biological drug stock solution + Preparation cdmo. The company will provide customers with higher value-added cdmo services for global regulatory markets such as China, the United States and Europe in the fields of small molecule chemical drugs and macromolecular biological drugs. We believe that cdmo business will become the second growth driver after the preparation business.
The operating cash flow became positive, the overall gross profit margin decreased, and the asset liability ratio decreased. 1) In 2021, the net operating cash flow of the company became positive for the first time since 2019, reaching 684 million yuan and showing a quarterly improvement trend. The net operating cash flow from 2021q1 to Q4 were 06 million yuan, 141 million yuan, 99 million yuan and 438 million yuan respectively. 2) In terms of gross profit margin, the comprehensive gross profit margin in 2021 was 56.71%, down 2.25pct year-on-year; By sector, the gross profit margin of heparin API was 52.33% (down 3.81 PCT), and the gross profit margin of preparation business was 59.85% (down 4.04 PCT). There are three main reasons: first, the rise in the price of crude heparin leads to the rise in the cost of heparin API; Second, affected by the epidemic situation, the export transportation cost of preparations increased; The third is the change of gross profit margin brought by the way of revenue recognition of Chinese preparations (affected by the mode of centralized purchase and sales). 3) The company’s asset liability ratio was 34.25%, a decrease of 17.25pct compared with last year, and the asset structure was significantly improved, mainly due to the increase of the company’s profit and the contribution of net assets.
Investment suggestions:
We expect that the net profit attributable to the parent company from 2022 to 2024 will be RMB 1.329/17.80/2.363 billion respectively, and the EPS will be RMB 1.07/1.43/1.90 respectively. The current share price corresponds to 24 / 18 / 14 times of PE. Considering the stability of heparin API as cash flow business of the company; The internationalization of preparations has accelerated with sufficient potential for growth. It has formed the core competitive advantage of the whole chain of “registration production sales”. China’s preparation business fully shares the dividends of centralized collection and also shows a rapid growth trend. We maintain its “buy” rating.
Risk tips:
Inventory impairment risk; Bad debt risk of accounts receivable; The internationalization progress of preparations is less than expected; Exchange rate fluctuation risk.
