ZHIFEI BIOLOGICAL(300122)EARNINGS REVIEW：SOLID REVENUE GROWTH PROPRIETARY PPV23 APPROVED FOR MARKETING

Zhifei Biological basically met revenue expectations for 1H23 as its business maintained solid growth amid expanding 9-valent HPV vaccine coverage in China. We believe that the 9-valent HPV vaccine will take market shares from bivalent HPV vaccine. We therefore slightly lift our 2023E/24E/25E ANP forecast to Rmb8.743bn/9.081bn/8.507bn (from prior forecast of Rmb8.504bn/8.156bn/7.746bn), corresponding to 2023E/24E/25E EPS forecast of Rmb3.64/3.78/3.54 (previous: Rmb3.54/3.40/3.23, as converted based on its latest share capital). Based on the valuations of comparable companies (per CITICS Research forecast) -- Wantai Biological Pharmacy (603392.SH) (bivalent HPV vaccine leader, a newly added and covered comparable company), Kangtai Biological Products (300601.SZ) and Walvax Biotechnology (300142.SZ), which had an average PE of 19x for 2023E by Sep 5, 2023, and considering the high proportion of the Company’s distribution business (with a lower gross profit margin ), we assign 15x 2023E PE to derive a reduced target price of Rmb55 for Zhifei Biological (from prior Rmb71; divided by the latest outstanding shares) and reiterate our “BUY” rating on the Company.
Distribution business sees fast-growing sales with revenue decline for proprietary products. Zhifei reported 1H23 revenue of Rmb24.445bn (+33.19% YoY), attributable net profit (ANP) of Rmb4.26bn (+14.24% YoY) and recurring ANP of Rmb4.211bn (+13.53% YoY). Specifically, it recorded 2Q23 revenue of Rmb13.273bn (+39.53% YoY), ANP of Rmb2.228bn (+23.34% YoY) and recurring ANP of Rmb2.18bn (+20.23% YoY). The Company registered 1H23 revenue of Rmb23.583bn (+41.35% YoY) from distribution business, and Rmb860mn from proprietary products (-48.44% YoY). The decline in revenue of proprietary products was mainly due to much lower YoY revenue from Zhifei’s Covid-19 vaccines as demand for Covid-19 vaccines waned in China. 1H23 gross profit margin (GPM) was down 3.90ppts YoY to 29.55%. Selling, administrative and R&D expense ratios were at 4.85%, 0.75% and 1.79%, respectively (-0.33ppts, +0.18ppts and -0.33ppts YoY, respectively). 1H23 attributable net profit margin (NPM) was down 2.89ppts to 17.43%. As the Company saw significant sales increase of its distribution business in 1H23 and is poised to benefit from China’s expanding 9-valent HPV vaccine coverage, we predict that Zhifei will continue to maintain high growth through the year.
The 9-valent HPV vaccine grew rapidly, with a basic procurement volume of over Rmb100bn. In terms of distribution products, the tetravalent HPV vaccine was approved and handed out with 6.2667mn doses (+28.5% YoY), the 9-valent HPV vaccine with 14.6782mn doses (+57.85% YoY), the pentavalent rotavirus vaccine with 6.5968mn doses (+35.62% YoY), the 23-valent pneumonia vaccine with 813,900 doses (-20.35% YoY), and the inactivated Hepatitis A vaccine with 311,400 doses (+145.30% YoY). The Company signed the Supply, Distribution and Co-promotion Agreement with MSD on Jan 21, 2023,to uniformly renew the basic procurement volume of five vaccine products for which MSD has obtained marketing license in the Chinese mainland. The Company and MSD have agreed that the basic procurement volume for HPV vaccines during 2H23-2026 will be Rmb21.406bn, Rmb32.626bn, Rmb26.033bn, and Rmb17.892bn, respectively. Previously, the agreed basic procurement volumes for HPV vaccines from 2020 to 2022 were Rmb9.469bn, Rmb11.607bn, and Rmb12.941bn, respectively. The actual procurement volumes came in at Rmb8.809bn, Rmb16.562bn, and Rmb22.675bn, respectively. According to the agreed procurement amount, the HPV vaccines distributed by the Company will continue to dominate the domestic market.
The proprietary PPV23 has been launched, and R&D pipeline on fast track. In terms of proprietary products, the ACYW135 vaccine was approved and handed out with 3.3961mn doses (+92.79% YoY), the Hib vaccine with 570,700 doses, and the AC polysaccharide vaccine with 449,200 doses (-26.19% YoY). On Sep 1, 2023, the 23-valent pneumococcal polysaccharide vaccine (PPV23) developed by ZFSW, a wholly-owned subsidiary of the Company, obtained the "Drug Registration Certificate" issued by the National Medical Products Administration and was officially approved for market. According to its announcement, the Company has 29 independent R&D projects in total (excluding the Covid-19 project series), of which 16 are in the stage of clinical trials and application for registration (tetravalent influenza virus-split vaccine is in the process of application for market review, lyophilized human rabies vaccine (MRC-5 cells) and influenza virus-split vaccine have completed clinical trials, 5 in Phase III clinical trials, and 4 in Phase I and Phase II clinical trials each, respectively). In addition, there are 13 preclinical projects. The Company has sufficient pipeline echelons, which cover a wide range of diseases. Multiple large vaccine varieties will become the main driving force for the future development of the Company. Currently, Zhifei has three R&D bases, nine technology platforms, eight product matrices, and 48 patents.
Potential risks: HPV vaccine sales missing expectations; disappointing progress in product R&D; intensified competition; policy headwinds for the vaccine industry.
Earnings forecast, valuation and rating: The Company’s 1H23 performance almost meets expectations. We think the 9-valent HPV will take market share from the bivalent HPV vaccine. Therefore, we slightly increase our 2023/24/25 net profit forecast to Rmb8.743bn/9.081bn/8.507bn (from prior Rmb8.504bn/8.156bn/7.746bn), corresponding to 2023/24/25 EPS of Rmb3.64/3.78/3.54 (from prior 3.54/3.40/3.23 converted from the latest shares). Based on the valuations of comparable companies (per CITICS Research forecast) -- Wantai Biological Pharmacy (603392.SH) (bivalent HPV vaccine leader, a newly added and covered comparable company), Kangtai Biological Products (300601.SZ) and Walvax Biotechnology (300142.SZ), which had an average PE of 19x for 2023E by Sep 5, 2023, and considering the high proportion of the Company’s distribution business (with a lower gross profit margin ), we assign 15x 2023E PE to derive a reduced target price of Rmb55 (from prior Rmb71; divided by the latest outstanding shares) and reiterate our “BUY” rating.
【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。

   【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。