\u3000\u3 Guocheng Mining Co.Ltd(000688) 076 Jiangsu Sinopep-Allsino Biopharmaceutical Co.Ltd(688076) )
Financial performance: income growth fluctuated and net profit margin decreased
The company released the annual report of 2021 and the first quarterly report of 2022. The revenue in 2021 was 640 million yuan, a year-on-year increase of 13.2%; The net profit attributable to the parent company was 120 million yuan, a year-on-year decrease of 6.5%; The net profit margin was 17.9%, with a year-on-year decrease of 3.9pct. Net profit deducted from non parent company was 100 million yuan, with a year-on-year increase of 11.0%. In a single quarter, the revenue of 2021q4 was 190 million yuan, a year-on-year increase of 1.0%; In 2022q1, the revenue was 130 million yuan, a year-on-year decrease of 19.2%. In terms of net profit in a single quarter, the net profit attributable to the parent company in 2021q4 was 26.8 million yuan, a year-on-year increase of 6.5%; The net profit attributable to the parent company in 2022q1 was 16.1 million yuan, a year-on-year decrease of 59.5%.
Growth of API production capacity and API (d) release capacity
In terms of business segments, C (d) Mo business: large customers and large projects account for a high proportion (44% of the top five customers in 2021). In 2021, the company’s C (d) Mo business contributed to the main revenue increment (revenue increased by 23.8% year-on-year in 2021 and revenue accounted for 79.4%). According to the inventory situation, we believe that the fluctuation of the company’s 2022q1 revenue growth may come from the fluctuation of order delivery under the influence of the epidemic. At the same time, we pay attention to the marginal changes of C (d) Mo business in 2021: ① the expansion of BD team and R & D team (“establish BD team in the United States and Europe”, “the company increases the number of cdmo R & D personnel by 13”); ② The quality system is becoming more and more perfect (Jiande factory has passed the GMP system certification of API production of the State Food and Drug Administration); ③ Launch of new capacity (“it will be gradually put into use in 2022 and 2023”). Looking forward to 20222024, we expect the growth of C (d) Mo business of the company to come from: ① the growth of intermediate demand caused by the expansion of drug market / increase of indications corresponding to large projects (many indications and drug combinations of ruxolitinib are in clinical stage); ② Promote the clinical stage of service projects (according to the 2021 semi annual report, “in the first half of 2021, the number of products forming cdmo / CMO revenue of the company is 22, including 5 products in the commercialization stage and 17 products in the clinical stage”); ③ New projects and new customer development (“the company attaches importance to the promotion of the Chinese market, allocates BD personnel, maintains good interaction and communication with Chinese customers, and develops five new Chinese customers”). We pay attention to the progress of the company’s BD team building and new customer expansion from 2022 to 2024. With the increase of the number of C (d) Mo projects outside China and the rich customer structure, it is expected to gradually reduce the performance fluctuation caused by the order delivery rhythm of key customers.
API and preparation business: the integrated expansion of API and preparation has entered the cashing period. In 2021, the company’s API and preparation business declined slightly (the revenue in 2021 decreased by 14.1% year-on-year, accounting for 20.4%). We expect it to be mainly affected by the registration and approval of downstream preparation products, marketing and sales volume. In addition, we are also concerned about the marginal changes of the company’s API and preparation business in 2021: ① the increase of API end customers (“the independently developed API business has newly developed 5 end customers in Europe and the United States”); ② The registration of preparation products was accelerated and the centralized purchase volume was increased (at the end of 2021, four preparation products were in the registration review, “on June 23, 2021, the company successfully won the bid in the fifth batch of volume procurement, and the terminal sales increased steadily”). Looking forward to 20222024, we expect the growth of API and preparation business revenue to come from: ① the incremental contribution of China’s centralized purchase to the company’s API business (the corresponding preparations of the company’s API etibatide, octreotide acetate and oseltamivir phosphate have been included in the seventh batch of centralized purchase); ② Jiangsu Lianyungang Port Co.Ltd(601008) new production capacity continues to be built to support the growth of polypeptide + small molecule API business; ③ The integrated batch of peptide injection has been registered (the batch of peptide injection has been accelerated). We are optimistic about the new increment of API and preparation business of the company from 2022 to 2024.
Profitability: gross profit margin and net profit margin declined slightly
In terms of gross profit margin, the gross profit margin in 2021 was 55.8%, down 2.4pct year-on-year. In terms of sectors, we believe that the decline in gross profit margin is mainly due to the impact of C (d) Mo business (the gross profit margin of C (d) Mo business decreased 4.0pct year-on-year in 2021), and the CMO business with relatively low gross profit margin achieved a large volume (“apc180 project has been in stable production in this period, resulting in a significant increase in revenue compared with the same period last year”). In terms of cost rate, the level of management cost rate has been improved due to the company’s gradual increase in personnel recruitment. Looking forward to 20222024, we consider that with the increase of the proportion of CMO business and API and preparation business, the gross profit margin will decline slightly; With the increase of the proportion of preparation revenue, the overall sales expense rate has increased; Comprehensively, we expect the gross profit margin and net profit margin to decline slightly from 2022 to 2024.
Viewpoint: in the growth transition period, the key variables are smooth fluctuation of project echelon and API registration
We believe that the company’s C (d) Mo business is now in the development stage of high proportion of large customers and large projects and gradual release of production capacity. The delivery of large projects is disturbed by registration approval, terminal sales and other factors, with certain volatility; The increase in the number of service projects and the expansion of BD team are important variables to reduce the quarterly delivery volatility of the company’s C (d) Mo business and improve the asset turnover rate. With the release of the company’s new capacity and richer project reserves, we expect the revenue volatility of C (d) Mo to decrease; In addition, the company’s API & preparation business under centralized procurement is expected to continue to contribute to the increment and support the overall steady growth.
Profit forecast and valuation
We expect that the company’s EPS from 2022 to 2024 will be 0.64, 0.78 and 0.96 yuan / share respectively, and the closing price on April 28, 2022 corresponds to 38 times of PE in 2022. We believe that major customers / projects are the basic market for the company’s current C (d) Mo business growth. With the release of the company’s new production capacity and richer project reserves, we expect the C (d) Mo revenue volatility to decrease; Under centralized procurement, the company’s API & preparation business is expected to maintain steady growth and maintain the “overweight” rating.
Risk tips
Order delivery volatility risk, cdmo customer and order loss risk, product volume less than expected risk, product R & D failure risk, etc.
