Company Profile

TONGHUA DONGBAO PHARMACEUTICAL CO., LTD. is a China-based company, principally engaged in the research and development, manufacture and distribution of pharmaceuticals. The Company provides biological products, traditional Chinese medicines and chemical supplements, applied in the treatment of diabetes and cardiovascular and cerebrovascular diseases, among others. The Company's main products portfolio consists of recombinant human insulin bulk drugs and injections, zhennaoning capsules, among others. The Company also provides medical instruments, plastic-steel windows and profiles, and operates property business. The Company distributes its products within domestic markets and to overseas markets. (Source:MarketScreener)

Comments

Tonghua Dongbao Pharmaceutical (“the company”) is taking a turn in its performance as it is able to trade price for volume after insulin is purchased in a centralized way.

The company still achieved CNY1.366 billion in revenue in the first half of 2023, a year-on-year drop of 1.53%. Thanks to the larger volume of centralized procurement, the sales of the company’s insulin products rose to various extent in the first half of 2023.

Specifically, the sales of human insulin grew steadily, with its share rising to 44.6%, ranking the first across the country. In addition, the sales of insulin analogues also grew rapidly.

In the first half of 2023, the company achieved CNY485 million in net profit attributable to shareholders, a year-on-year drop of 59%, mainly due to its selling of some holdings of Amoytop Biotech in H1. The H1 net profit attributable to shareholders and excluding gains and losses from non-recurring items was CNY480 million yuan, up 8.75% YoY.

The company is engaged in the field of endocrinology and metabolism and is working on new products in gout, sugar reduction and weight loss.

The company introduce layout in GLP-1RA, DPP-4, SGLT-2 hypoglycemic drugs that have huge market potential. In addition to diabetes treatment, the company has also expanded its layout in recent years to the treatment of gout/hyperuricemia in the field of endocrine metabolism as well as other indications such as obesity and NASH.

The company has steadily advanced its internationalization strategy and expanded its global market.

At present, the company has established business connection with companies in Eastern Europe, Southeast Asia, West Asia, Central Asia, the Middle East, Africa, South America and Central America, injecting strong steam into subsequent international production and overseas commercialization. In addition, the company has also signed the “Cooperation Agreement on the Exclusive License of Liraglutide in Overseas Markets” with Kexing Biopharm.

Earnings forecast and investment recommendation

The company maintains its leading position in the second-generation insulin sector. The company is expected to tap into new growth potential, as the sales of third-generation insulins such as glargine and asparagine continue to grow. The company advances ongoing research projects such as insulin lispro, GLP-1, and innovative diabetes drugs, which are set to boost its long-term growth.

Considering the intensified competition in diabetes drugs and the lower price for the procurement of biosimilars, we estimate revise company’s earnings forecasts and now estimate its EPS at CNY0.54, CNY0.62 and CNY0.73 for 2023, 2024 and 2025, implying a PE ratio of 18.2x, 15.9x and 13.5x, respectively, based on the closing price on August 22, 2023.

We maintain the rating of “Outperform”.

Potential risks

Lower-than-expected insulin sales; risks related to centralized procurement of insulin; slower-than-expected progress of new product R&D and marketing; slower-than-expected progress of new product expansion.