\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 521 Zhe Jiang Hua Hai Pharmaceuticalco.Ltd(600521) )
Key investment points
Financial performance: the net profit in 2021 decreased year-on-year and continued to improve month on month in 2022q1
The company released the annual report of 2021 and the first quarterly report of 2022, with a revenue of 6.64 billion yuan in 2021, a year-on-year increase of 2.4%; The net profit attributable to the parent company was 490 million yuan, a year-on-year decrease of 47.6%; The net profit margin attributable to the parent company was 7.3%, with a year-on-year decrease of about 7pct. In a single quarter, the revenue of 2021q4 was 2.05 billion yuan, a year-on-year increase of 26.7%; The net profit attributable to the parent company is – 100 million yuan. In 2022q1, the revenue was 1.77 billion yuan, a year-on-year increase of 18.4%; The net profit attributable to the parent company was 140 million yuan, a year-on-year decrease of 46%; Net profit deducted from non parent company was 130 million yuan, a year-on-year decrease of 13%. We believe that from the perspective of quarterly revenue, the main business revenue has improved year-on-year since 2021q4.
Growth capacity: 2022 is expected to become a new starting point for the export of preparations
From the perspective of revenue increment contribution, we believe that the API, intermediate and foreign preparation business dragged down the revenue growth in 2021, and Chinese preparations contributed the main increment; Looking forward to 2022, we expect Chinese and foreign preparations to be the main drivers of revenue growth. See each section for details:
① APIs and intermediates: in 2021, the revenue was 2.77 billion yuan, a year-on-year decrease of 10.7%, accounting for 41.7%. In terms of indications, the revenue of antihypertensive APIs (accounting for about 59% of the revenue of APIs and intermediates) decreased by 15.6% year-on-year, We believe that it is mainly related to the decline in the volume and price of sartan API business (according to the annual report, the total sales volume of pril API and intermediate in 2021 increased by 8.3% year-on-year, and the sales volume of sartan decreased by 5.7% year-on-year; according to wind data, the overall price of pril is relatively stable, and we speculate that the decline in the revenue of antihypertensive API is mainly related to sartan). Looking forward to 20222024, we believe that under the background that the company’s South Sichuan factory has passed the FDA inspection, the proportion of sartan API sold by the company in the standardized market is expected to increase, driving the overall sales price of sartan API to rise. For nervous system APIs (the business accounts for about 24.6% of the revenue of APIs and intermediates), we believe that the revenue growth of this sector comes from the stable competition pattern between new varieties (memantine hydrochloride and other approved products in China mentioned in the annual report) and old varieties. For other APIs, we believe that the company is authorized by MPP to produce nirmatrelvir, which is expected to gradually contribute to the increase of API revenue from 2022q4, significantly supporting the growth of API sector from 2022 to 2024; New hypoglycemic varieties such as englitazin, votexetine and kaglitazin have passed the FDA review. We believe that they may also open the space for continuous growth of API business.
② Chinese preparations: in 2021, the revenue was 2.86 billion yuan, a year-on-year increase of 38.1%, accounting for 43%. We believe that the higher growth of the company’s Chinese preparations is due to: (1) the increase in the market share of the sample hospitals of the bid winning varieties that have been intensively collected, and the sinking of the three terminal channels. For example, the company’s valsartan tablets and other varieties are in the Jointown Pharmaceutical Group Co.Ltd(600998) contract. The sales data of wind sample hospitals can verify that the market share of the company’s sertraline hydrochloride tablets and other varieties continues to increase. (2) The new bid winning of centralized procurement brings about increment. The companies in the fourth batch (February 2021) and the fifth batch (June 2021) won the bid of voriconazole tablets, aripiprazole tablets and rivaroxaban tablets respectively. From the perspective of delivery rhythm, we believe that the new bid winning varieties are expected to contribute increment from 2022 to 2023.
③ foreign preparations: in 2021, the revenue was 790 million yuan, a year-on-year decrease of 23.4%, accounting for 11.8%. We believe that the company’s Linhai Chuannan production base (API production line) passed the FDA on-site inspection with zero defect (NAI) on October 25, 2021. The export of preparations is expected to gradually recover from 2022. With the approval of Anda and the recovery of the market share of sartan preparations, it is expected to become a new starting point for the company’s preparation export from 2022 to 2023. Generic drugs with high barriers and better competition pattern are expected to gradually contribute to the increment from 2024, Gradually transition from the cost advantage strategy of API to the preparation export platform relying on barrier variety approval + multi variety iteration.
Profitability: the net profit margin is expected to increase in 2022
Gross profit margin: expected to continue to improve. In 2021, the company’s comprehensive gross profit margin was 60%, with a year-on-year decrease of 3.7pct; The comprehensive gross profit margin in 2022q1 was 61.6%, increased by 4.5pct month on month compared with 2021q4, and decreased by 1.4pct year-on-year in 2021q1. We believe that the decline in the comprehensive gross profit margin in 2021 is mainly caused by the decline in the gross profit margin of antihypertensive APIs (a year-on-year decrease of 14.4pct) and the decline in the gross profit margin of preparation exports (a year-on-year decrease of 13.1pct). Looking forward to 20222024, we believe that (1) under the lifting of the ban of the factory in southern Sichuan, the company’s market share of sartan preparations in the United States is expected to increase significantly, and under the scale effect of sartan API production, The gross profit margin of antihypertensive APIs and downstream preparations is expected to increase. (2) The proportion of non scalar revenue in centralized mining of Chinese preparations may further increase, driving the overall gross profit margin. Profit margin: expected to improve. In 2021, the company’s net profit margin excluding non parent company decreased significantly. We believe that it comes from (1) the significant year-on-year increase in R & D expenses (a year-on-year increase of 380 million yuan in 2021, mainly from the clinical promotion of biological drugs and other projects), (2) the significant year-on-year increase in management expenses (among which the growth of intermediary consulting fees and amortization of share based payment expenses is more obvious). In our opinion, considering the research pipeline of innovative chemical drugs, biological drugs and APIs that the company continues to promote, the R & D expense rate in 20222024 may decrease slightly compared with that in 2021, but remain at a high level (assuming about 13-14%); The net profit margin of Chinese preparations may decline with the increase of the proportion of foreign income in centralized mining in the income of Chinese preparations. Overall, under the revenue structure, we expect the company’s net profit margin to increase from 2022 to 2024.
Profit forecast and valuation
We believe that 2022 is expected to become a new starting point for the recovery of the company’s preparation export and the repair of the net profit margin of API business. Under the bid winning of centralized procurement, Chinese preparations are expected to contribute continuous increment, and MPP authorization from 2022q4 is expected to contribute new increment of API. Considering the volume of successful varieties purchased by the company, the incremental space of API new varieties and the upward elasticity in 2022 after the lifting of the U.S. export ban, we expect the company’s EPS to be 0.47, 0.61 and 0.77 yuan / share respectively from 2022 to 2024. The closing price on April 28, 2022 corresponds to 31 times that of 2022, maintaining the rating of “increased holding”.
Risk tips
Risk of centralized purchase of core varieties; The risk that FDA inspection progress is slower than expected; The risk that overseas litigation compensation is higher than expected; Performance fluctuation risk caused by export foreign exchange lock; Production quality management risk, etc
