We expect soft 2H23 results amid the anti-corruption campaign, which negatively impacted the sales of Simcere’s core products like Sanbexin and Enweida. Overall, we expect 6%/3% YoY growth of revenue/ adjusted net income in 2023. For 2024, we see impacts from the anti- graft campaign mitigating, and we expect faster growth in profit thanks to improving gross margin and optimised Opex. Maintain BUY rating and revise down TP to HK$9.4.
Key Factors for Rating
2H23 preview: nationwide anti-corruption campaign starting from August 2023 on medical system in China resulted in disruption to sales and marketing activities of pharma companies and decreasing off-label drug usages, leading to near-term headwinds to revenues of pharma companies, while the academic conferences and sales activities has resumed from September. For Simcere, we expect 2H23 revenue to decline 8% YoY (or decline 1% HoH) to RMB3.34bn, dragged by slowing prescription of Sanbexin, Enweida, etc., amid the anti- corruption campaign, summing up to RMB6.72bn of sales in 2023 (9% below consensus). Meanwhile, we expect gross margin of 76% (-2.7ppts YoY) in 2H23 blamed on (i) lower contribution from Sanbexin, and (ii) low gross margin of Xiannuoxin, etc. At the same time, we expect selling expenses ratio of 32% in 2H23 due to the impact of anti-corruption campaign. Correspondingly, we lowered adjusted net profits to RMB375m in 2H23, representing adjusted net income of RMB697m in 2023.
2024 outlook: In 2024, we expect Simcere to resume 19% topline growth, driven by 20% sales growth of Sanbexin, continuously rapid sales ramp up of COSELA/Xiannuoxin, and steady growth of Enweida. We expect Sanbexin to achieve rapid growth again in 2024 after digesting the price cut impact in 2023, thanks to broad medical institution coverage and higher grade of clinical guideline recommendation. We expect net profit to witness more robust growth (+40% YoY in 2024), thanks to 1) improved gross margin on localised production of Cosela, sales recovery of Sanbexin, and scale economies of Xiannuoxin, and 2) optimised Opex ratio from disciplined RnD and S&M expense.
New products to launch/submit NDA in China: We expect CMAB009 (EGFR mAb) and Sanbexin sublingual tablet to be approved in 2024 in China.
Besides, we expect Simcere to submit NDA for Suvemcitug (in ovarian cancer), ADC189 (in influenza) and Daridorexant (in insomnia) in 2024. Besides, we expect Xiannuoxin to obtain full approval from NMPA, which will allow Xiannuoxin to be sold via online channel.
Key Risks for Rating
(i) Higher-than-expected price cut on core products, (ii) uncertainty of pipeline development, (iii) delayed commercialisation progress, and (iv) competition.