huahaipharm(SH:600521) Tianfeng Securities·2024-08-15 10:00Investment Rating - The report initiates coverage with a "Buy" rating for the company [2][5]. Core Views - The company is a leading player in the specialty API market, with a balanced and comprehensive development strategy. It has established a complete industrial chain integrating intermediates, APIs, and formulations, while also advancing its innovative drug strategy for diversified growth [1][20]. - The company is a major global supplier of ACE inhibitors and ARBs, with significant market shares. The revenue from neuropsychiatric APIs has been growing rapidly, with 2023 revenue nearing 1 billion yuan, reflecting a year-on-year growth of nearly 20% [1][40]. - The company is expected to see a recovery in domestic formulation revenue and profit in 2024, following the end of price declines for existing products. The company has accelerated project applications and product approvals, achieving 15 new domestic formulation approvals in 2023 [1][3]. Summary by Sections Company Overview - The company, Huahai Pharmaceutical, was established in 1989 and listed in 2003. It has over 8,000 employees and operates more than 40 subsidiaries globally, making it a key manufacturer in cardiovascular and mental health products [20][21]. API and Intermediate Business - The company’s API and intermediate business is foundational, with a focus on cardiovascular, neuropsychiatric, and anti-infective drugs. The demand for APIs is expected to grow due to the increasing prevalence of chronic diseases like hypertension [38][41]. - The company is a leading supplier of ARBs and ACE inhibitors, with ARBs accounting for approximately 60% of its API sales. The global consumption of ARBs has been growing at an average rate of about 10% annually [40][43]. Formulation Business - The formulation segment has been expanding, with a revenue split of 38.03% from APIs and 59.35% from formulations in 2023. The company has seen a recovery in overseas formulation sales, with ANDA applications providing stable growth [3][30]. - The domestic formulation business is expected to recover in 2024, driven by the end of price declines and an increase in new product approvals [1][3]. Innovative Drug Development - The company is pursuing a progressive innovation strategy, focusing on biosimilars and small molecule drugs. Several products are in critical clinical stages, with potential commercialization in the near future [1][36]. - The company has made significant progress in its R&D pipeline, with 15 new domestic formulation products and 8 ANDA approvals in 2023, alongside 7 clinical approvals for innovative drugs [36][38]. Financial Forecast and Valuation - The company’s projected revenues for 2024-2026 are 10.03 billion, 12.02 billion, and 14.10 billion yuan, respectively, with year-on-year growth rates of 20.76%, 19.78%, and 17.31%. The net profit attributable to shareholders is expected to be 1.26 billion, 1.63 billion, and 2.03 billion yuan for the same period [2][4]. - The target price is set at 21.52 yuan per share, based on a 25x PE ratio for 2024 [2][5].