JIUZHOU PHARMACEUTICAL(603456)：COMMENTS ON 2023 SEMI-ANNUAL REPORT：PROFIT IN LINE WITH EXPECTATION AS CDMO BUSINESS GREW RAPIDLY-格隆汇

机构：兴业证券
研究员：SUN Yuanyuan/HUANG Hanyang/YANG Xicheng

　　Company Profile
　　Zhejiang Jiuzhou Pharmaceutical Co., Ltd. （“the company”） is a China-based company principally engaged in the research, development, production and sales of chemical Active Pharmaceutical Ingredients （API） and intermediates. The Company mainly operates through two segments, including the New Drug and Intermediates Contract Development and Manufacturing Organization （CDMO） segment and the Specialty APIs and Intermediates segment.
　　The New Drug and Intermediates CDMO segment mainly provides services for innovative medicines of pre-clinical chemical manufacturing and controls （CMC）， clinical phases I, II and III, new drug application （NDA） and various stages after going public. The Specialty API and Intermediates segments mainly provides services including patent breakthroughs, production process improvement, drug certificate declaration, and cGMP standard commercial production for patented expired or soon-to-be-expired drugs for global chemical and generic drug manufacturers. （Source:Reuters）
　　Event
　　Zhejiang Jiuzhou Pharmaceutical （“the company”） releases its 2023 Semi-Annual Report.
　　In H1, 2022, the company achieved a revenue of CNY3.255 billion, a year-on-year （YoY） increase of 10.16%.
　　The company reported CNY622 million in net profit attributable to shareholders for the period, a YoY growth of 32.83%.
　　The company also reported CNY613 million in net profit attributable to shareholders and excluding gains and losses from non-recurring items, up by 30.78% YoY.
　　Comments
　　The company’s profit is in line with expectations, showing rapid overall growth.
　　The CDMO business maintains strong growth, and the pipelines grow steadily.
　　The large order market is expected to expand; the production capacity expands smoothly. The global layout is further deepened. The company’s gross profit margin rises significantly after the proportion of CDMO business increases, and the expense ratios remain stable during the reporting period.
　　Earnings forecast and investment recommendation
　　The company continues to develop its CDMO business. As the company commercializes and scales up major products, upgrades advanced technology platforms and expands production capacity, its market competitiveness will further rise. The higher proportion of its CDMO business will also continue to improve its profitability. We revise our forecast of the company’s EPS to CNY 1.34, CNY1.76, and CNY2.35 for 2023, 2024 and 2025, respectively, implying a PE ratio of 21.0x, 16.0x, and 12.0x respectively, based on the closing price on August 14, 2023.
　　We maintain the rating of “Outperform”。
　　Potential risks
　　Fluctuations of major customers; policy changes; market competition; environmental protection and safety risk.