Everbright Securities: Give Kanghua Biologics a buy rating

2021-10-27Lin Xiaowei and Wang Mingrui of Everbright Securities Co., Ltd. conducted research on Kanghua Biology and released the research report "2021 Third Quarterly Report Review: The Batch Issuance Cycle Affects Short-term Performance, and the Bottleneck of Future Production Capacity is Further Lifted", this report gives a buy rating to Kanghua Biologics, and the current stock price is 172.22 yuan.

Kanghua Bio (300841)

Event: The company released the third quarter report of 2021, achieving operating income of 789 million yuan, -4.41% year-on-year; net profit attributable to the mother of 583 million yuan, a year-on-year +69.75%; deduction of non-attributable net profit of 343 million yuan, year-on-year +0.19%; operating net cash flow of 0.12 billion yuan, a year-on-year -95.75%; EPS 6.48 yuan. The performance was lower than market expectations.

Comments:

The batch issuance cycle affects short-term performance, and the bottleneck of future production capacity is further lifted: 2021Q1~Q3, the company's single-quarter operating income is 2.37/3.23/228 million yuan, +50.96%/+8.54%/-38.33% year-on-year; net profit attributable to the mother is 1.00/1.52/331 million yuan, year-on-year +54.91%/+28.74%/+105.74%; deduction of non-attributable net profit is 0.99/1.44/1.00 billion yuan, year-on-year + 53.62%/+22.59%/-37.74%。 Q3 Non-recurring profit and loss of RMB231 million, estimated to be mainly due to the impact of fair value change gains from companies such as equity participation in Abbott Biotech. Revenue and deduction of non-net profit showed negative growth, mainly due to the misalignment of the batch issuance work and the product production cycle, which affected the short-term sales work, and it is expected that the company's performance will improve with the advancement of subsequent batch issuance. The company's second workshop for viral vaccines is planned to have an annual production capacity of 2 million units, which has been put into operation in June 2021, further lifting the bottleneck of future production capacity.

Strengthen R&D investment and continue to enrich the product line: 2021Q1~Q3, the company's R&D expenses were 0.46 billion yuan, and the R&D expense rate was 5.80%, an increase of 22.49% year-on-year. The company adheres to the combination of independent research and development and cooperative research and development, and some of the company cooperates with institutions and enterprises with strong R&D strength or systematic development capabilities such as the Chinese Academy of Sciences, the University of Hong Kong, Sichuan University, Tianjin Medical University, WuXi Biologics, and Heyuan Biologics in the early stage of product research and development. At present, a total of 10 R&D projects are in progress, and it is expected that a number of new products will be carried out or clinical trials will be declared in 2021-2022.

Earnings Forecast, Valuation and Rating: Maintain forecasts for the company's 2021-2023 EPS of $6.91/9.99/14.62, an increase of 52.35%/44.67%/46.32% year-on-year, and maintain a "Buy" rating of 25/17/12 times the CURRENT price PE.

Risk Warning: The risk of deterioration of the competitive pattern of human diploid seedlings; the risk that the progress of the project under research is lower than expected; the risk that the sales of pet seedlings do not meet expectations.

A total of 5 institutions have given ratings and 5 buy ratings in the last 90 days; the Securities Star Valuation Analysis Tool shows that Kanghua Bio (300841) good company rating is 3.5 stars, good price rating is 1.5 stars, and valuation comprehensive rating is 2.5 stars.