\u3000\u3000 Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) (603456)
Event: the company released the performance forecast for 2021. It is expected to realize the net profit attributable to the parent company of 609 million yuan to 685 million yuan (+ 60.00% ~ + 80.00% YoY), deducting the net profit not attributable to the parent company of 532 million yuan to 596 million yuan (+ 65.00% ~ + 85.00% YoY). The performance is in line with the market expectation.
2021q4 performance meets expectations and cdmo business continues to grow. Taking the median value of the performance forecast, in 2021q4, the company expects to realize a net profit attributable to the parent company of 174 million yuan (+ 23% YoY), deducting a net profit not attributable to the parent company of 127 million yuan (+ 14% YoY), which is in line with market expectations. Under the background of 2020q4 high base, mainly benefiting from the continuous growth of the company’s cdmo business, we expect the company’s net profit attributable to the parent company to achieve positive year-on-year growth for 7 consecutive quarters.
Cdmo’s main products are still in a large-scale period, and customer cooperation is constantly upgrading. 1) Customers / orders: according to the third quarterly report of Novartis in 2021, entresto achieved sales of US $924 million (+ 44% YoY), Tasigna achieved sales of US $514 million (+ 7% YoY), and kisquali achieved sales of US $232 million (+ 27% YoY), indicating that the company’s main cdmo downstream products are still in a high-volume period. In terms of customer development, the company has formed in-depth embedded cooperative relations with Roche, zoetis, GSK, Gilead and first Sangong outside Novartis. As of 2021q3, Zhejiang Ruibo has passed shuotang EHS audit and Hangzhou Ruibo has passed Roche EHS audit. In terms of project structure, as of 2021h1, the number of listed, phase III, phase I and phase II projects of the company was 18 / 41 / 471 respectively, and the funnel-shaped order structure continued to strengthen. 2) Capacity expansion: at present, the company has three cdmo production bases of Ruibo Suzhou, Zhejiang Ruibo and Ruibo Taizhou, and adopts the principle of “matching capacity expansion with business orders”. Ruibo Suzhou has started the construction of pilot workshop, which is expected to be completed and put into use in 2022, and the construction of another two commercial workshops is expected to start in 2022; Through modularization and automation transformation, Zhejiang Ruibo has significantly improved its operation efficiency. At the same time, it has gradually shifted the production capacity of some generic API to release more production capacity to cdmo business; Ruibo Taizhou will add 287 mu of land, and four workshops are expected to be built in 2023 and put into use in early 2024. To sum up, the company’s cdmo business benefits from the downstream volume of commercial varieties in the short term, medium and long-term customer reserves and project structure optimization to ensure sufficient development momentum.
Actively expand new business areas of cdmo such as peptides and nucleic acids. As of November 8, 2021, the company has completed the construction of peptide team and R & D platform, and has the ability to undertake from preclinical R & D to phase I clinical of peptide API. The project undertaking is better than expected. In addition, the company is also actively arranging nucleic acid business, screening industry development opportunities and building nucleic acid business undertaking capacity.
Profit forecast, valuation and rating: the company’s cdmo business benefits from the large downstream volume of commercial varieties in the short term, medium and long-term customer reserves and project structure optimization to ensure sufficient development momentum; The API business contributed to the increase of Regal’s resumption of production. We maintained the company’s net profit attributable to the parent company in 21-23 years to be RMB 608 / 808 / 1059 million, with a year-on-year increase of + 60% / + 33% / + 31% respectively. The current price corresponds to 70 / 53 / 40 times of PE in 21-23 years, maintaining the “buy” rating.
Risk tip: due to the negative impact of exchange rate fluctuations, the resumption of production of Ruike was less than expected, the price of API fell, and the volume of cdmo business was less than expected
