ZMC(SH:600216) Tebon Securities·2024-08-18 08:30Investment Rating - The report assigns a "Buy" rating for Zhejiang Medicine (600216.SH) [2] Core Views - The vitamin business is expected to rebound, with profit release imminent due to multiple factors driving price increases in vitamins A and E, including recovery in demand from the pig cycle and overseas markets, as well as supply-side constraints [2][22][23] - The company has a rich pipeline of formulations, with significant growth in products like Naquinone and Vancomycin, and is poised to benefit from the recent surge in vitamin D3 prices [3][15] - The company is undergoing a positive transformation with its innovative drug pipeline, although short-term challenges exist [3][15] Summary by Sections 1. Company Overview - Zhejiang Medicine, established in 1997, is a leading comprehensive pharmaceutical enterprise in China, primarily producing fat-soluble vitamins, quinolone antibiotics, and other products [15] - The company has a clear shareholding structure, with the controlling shareholder being New Changxin Investment Development Co., Ltd., holding 21.65% of the shares [15][16] 2. Vitamin Business Rebound - The vitamin A and E prices have significantly increased, with vitamin A rising by 208% and vitamin E by 172% compared to their respective lows in December 2023 [22][36] - The vitamin business accounted for approximately 48% of the company's revenue and 56% of gross profit in 2021, but this share decreased in 2022 and 2023 due to price declines [23][36] - The recovery in the pig cycle and overseas demand is expected to drive the demand for vitamins A and E, which are primarily used as feed additives [23][24] 3. Supply Dynamics - The supply side is experiencing significant constraints, with major maintenance periods for vitamin E production expected in Q3 2024, which will likely lead to further price increases [22][35] - Recent incidents, such as the explosion at BASF's facility, have also contributed to supply disruptions, enhancing the pricing power of vitamin producers [35][36] 4. Formulation Pipeline - The company has a diverse formulation pipeline, with 14 products entering centralized procurement, which is expected to drive revenue growth [3][15] - The sales volume of Naquinone capsules and injections has seen substantial growth, with increases of 46% and 195% year-on-year, respectively [3] 5. Financial Forecast and Valuation - The company is projected to achieve revenues of 9.48 billion, 10.09 billion, and 10.85 billion yuan for 2024, 2025, and 2026, respectively, with net profits of 1.052 billion, 1.201 billion, and 1.347 billion yuan [3][5] - The corresponding PE ratios for 2024, 2025, and 2026 are estimated to be 14.4, 12.6, and 11.2 times [3]