\u3000\u3 Shengda Resources Co.Ltd(000603) 707 Nanjing King-Friend Biochemical Pharmaceutical Co.Ltd(603707) )
Event summary
On April 27, 2022, the company announced the annual report of 2021 and the first quarterly report of 2022: the operating revenue in 2021 was 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 deducted from non parent company was 1.024 billion yuan, with a year-on-year increase of 33.47%; The gross profit margin was 56.71%, down 2.25pp. In 2022, Q1 company achieved a revenue of 1.177 billion yuan, with a year-on-year growth rate of 33.24%; The net profit attributable to the parent company was 330 million yuan, with 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%; The gross profit margin was 50.49%, down 7.07pp, and the performance growth was in line with expectations.
Key investment points
The performance growth was in line with expectations and the cash flow improved significantly
In 2021, the company realized a revenue of 3.687 billion yuan (+ 26.48%), of which the preparation sector was the main driving force for the improvement of the company’s performance, with a revenue of 2.13 billion yuan (+ 44.52%), accounting for 57.79% (+ 7.22pp); Heparin API business increased steadily, with revenue of 1.428 billion yuan (+ 9.47%), accounting for 38.72% of revenue. The cash flow increased significantly. In 2022, the company’s various injection products were approved for listing. After the rapid expansion of preparation sales, a stable payment collection began to be formed. In 2022, the net operating cash flow in Q1 was 250 million, about 40 times that of the same period last year. In 2021, the company’s gross profit margin was 56.71%, a decrease of – 2.25pp compared with last year. We speculate that it is mainly due to the increase of production costs in the middle and lower reaches due to the rise in the price of raw materials of crude heparin in in the upper reaches, as well as the increase in the cost of sales and transportation of preparations.
There are abundant preparation pipelines to maintain strong competitiveness
The company opened the international injection Market through the acquisition of meitheal. In 2021, meitheal’s operating revenue was 1.041 billion yuan, an increase of more than 50% over the same period of last year; With the approval of fda11 anda approvals in the United States, cisatracurium benzenesulfonate accounts for about 30% of the U.S. market, and bleomycin and gemcitabine injection account for about 20% of the U.S. market. In terms of Chinese preparations, in 2021, the company took the lead in the injection consistency evaluation market by virtue of the registration advantages of both China and the United States. A number of injection products won the bid for national / provincial centralized procurement. The sales performance in the Chinese market increased rapidly, and the profitability of high value-added products was effectively improved. In 2021, the gross profit margin of Chinese business reached 71.42%, an increase of 2.91pp over the previous year.
Heparin takes the lead in raw materials and its performance maintains stable growth
The company’s standard heparin raw material business developed steadily, with a revenue of 1.428 billion yuan, a year-on-year increase of + 9.47%, sales and output of 2.5 trillion and 5.6 trillion units respectively, a year-on-year increase of 10.21% and 40.64% respectively, and the stock of API warehouse increased by 139.53%, providing strong support for the standard heparin raw material business and the production of liver preparation products. In 2021, the gross profit margin of this business segment was 52.33%, with a year-on-year decrease of -3.81pp. We believe that it may be caused by the increase in the production cost of heparin API caused by the rise in the price of crude heparin raw materials.
Cdmo business is ready to go and the market space is broad
The cdmo segment of the company’s revenue in 2021 was 123 million yuan (- 7.24%), and the gross profit margin was 53.5%, an increase of + 21.04pp compared with last year. The biological innovative drug project started by the company in 2019 has been completed and put into operation. The macromolecular cdmo strategic cooperation project with Taize Huikang is expected to be officially launched in the middle of this year, and the company’s cdmo business is expected to usher in a new stage of development. We believe that the company is expected to provide differentiated cdmo services to standardize the whole industry chain of biological drugs in the market by virtue of its global regulatory operation experience.
Profit forecast
The operating income of the company is expected to be RMB 1.968 billion in 20206 / 20206 (originally RMB 1.968 billion-20208); The net profit attributable to the parent company was 1.323/1.703/2.123 billion yuan (1.103/1.483 billion yuan from 2022 to 2023); The corresponding EPS is 1.06/1.37/1.71 yuan (originally 0.89/1.19 yuan in 20222023), and 24.28/18.86/15.13 times for PE, maintaining the buy rating.
Risk warning: risk of rising raw material prices; Downstream demand fluctuation risk; Fluctuation risk of sterile injection development and approval; Order volatility risk; Risk that the progress of new drug research and development and marketing is less than expected.
