BCHT BIOTECHNOLOGY(688276)3Q23 EARNINGS REVIEW：RAPID QOQ GROWTH OF EARNINGS AND RISING HZV SALES IN 3Q23

　　In 1-3Q23, BCHT Biotechnology achieved revenue/attributable net profit (ANP)/recurring ANP of Rmb1,243mn/331mn/326mn (+43.60%/+56.31%/+62.91% YoY), respectively. The Company's earnings were basically in line with expectations. Rapid QoQ growth in 3Q23 was thanks to higher profitability underpinned by high-margin products.
　　BCHT's live attenuated herpes zoster vaccine (LAHZV) is the first in China.
　　At least as effective as Zostavax and significantly safer than Shingrix, the product is suitable for people at least 40 years old, indicating a huge total addressable market (TAM). Therefore, we remain optimistic about the market potential of BCHT's LAHZV and reiterate the "BUY" rating.
　　Earnings basically in line with expectations, with rapid QoQ growth in 3Q23.
　　In 1-3Q23, BCHT achieved revenue/attributable net profit (ANP)/recurring ANP of Rmb1,243mn/331mn/326mn (+43.60%/+56.31%/+62.91% YoY); the Company's selling/administrative/R&D expense ratios stood at 35.70%/9.21%/10.99% (-2.92ppts/-2.10ppts/-0.47ppts YoY). In 3Q23 alone, the Company's revenue/ANP/recurring ANP came in at Rmb684mn/220mn/219mn (+60.91%/+58.92%+70.60% YoY; +79.78%/+136.24%/+148.60% QoQ), respectively. The Company started shipping LAHZV in Jun 2023, resulting in rapid earnings growth in 3Q23.
Higher profitability underpinned by high-margin products.
　　In 1-3Q23, BCHT achieved gross profit margin (GPM)/net profit margin (NPM)/recurring attributable net profit margin (recurring ANPM) of 88.83%/26.63%/26.21% (+1.02ppts/+2.16ppts/+3.11ppts YoY). In 3Q23 alone, the Company's GPM/NPM/recurring ANPM came in at 89.48%/32.14%/32.09% (+2.06ppts/-0.40ppts/+1.82ppts YoY). The terminal price of BCHT's LAHZV is Rmb1,396/dose, with a GPM of over 90%, which drives up the Company's overall GPM level. Apart from increase in its revenue base, BCHT also saw a downward trend in its expense ratios. As a result, the Company's recurring ANPM improved significantly, and its overall profitability was higher than before.
Varicella vaccine sales were affected by decline in newborn population, but LAHZV created the second growth curve.
　　According to BCHT's 3Q23 results briefing, 75 batches of live attenuated varicella vaccine (LAVV) obtained the certificates of lot release by Oct 25, 2023 (vs 95 batches in the same period last year), mainly because the number of newborns in China dropped more than expected. China's newborns totaled 9.56mn in 2022, 1.06mn lower than the 10.62mn in 2021. The number of newborns in 2022 will affect the Company's sales of varicella vaccine in 2023.
　　BCHT's LAHZV obtained the "Certificate of Lot Release for Biological Products" for the first time in Apr 2023, and the shipments began in Jun 2023.
　　By Oct 25, 2023, 23 batches have obtained certificates of lot release, with each batch totaling 36k-37k doses and salable in 29 provinces and equivalent administrative units, which may become the core driver for the Company's earnings growth. BCHT proactively expands online marketing channels. At　　present, there are 1,000 points of vaccination (POVs) that accept online appointments, and the number may reach 3,000 in 1H24.
Shareholding in Transcend Biomedical; presence in mRNA technology platform; and improvement of R&D platform.
　　BCHT's announcement shows that in Jun 2023, the Company signed an investment agreement with Transcend Biomedical to subscribe for Rmb150mn worth of the latter's incremental registered capital, which accounted for a final shareholding ratio of 17.64%. The investment has accelerated the construction of BCHT's "mRNA vaccine technology platform", improved the intellectual property system related to mRNA vaccine, and further expanded the Company's R&D pipeline. BCHT's financial report shows that the Company's nasal spray influenza vaccine (NAIV) has completed Phase II clinical trials, is currently in the pre-new drug application (pre-NDA) stage, and may hit the market at the end of 2023. BCHT plans to invest Rmb850mn in building a split influenza virus vaccine (SIVV) project with a production capacity of 10mn doses per annum. Applicable for people aged 6 months and above, this SIVV project will achieve full population coverage.
Potential risks: Disappointing sales of LAHZV; intensifying market competition; slower-than-expected R&D progress; larger-than-expected changes in industry policies.
Earnings forecast, valuation and rating: BCHT's sales of LAHZV surged in 3Q23, resulting in rapid earnings growth.
　　We slightly raise our 2023E/24E/25E ANP forecast to Rmb521mn/689mn/947mn (from Rmb515mn/672mn/937mn), corresponding to 2023E/24E/25E EPS of Rmb1.26/1.67/2.29 (from Rmb1.25/1.63/2.27), with the latest share price equivalent to 51x/38x/28x 2023E/24E/25E PE. BCHT's LAHZV is the first in China. At least as effective as Zostavax and significantly safer than Shingrix, the product is suitable for people at least 40 years old, indicating a huge TAM. Therefore, we remain optimistic about the market potential of BCHT's LAHZV and reiterate the "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。