Weiguang Biological is a leading manufacturer of blood products in China. To expand its business scale, the Company proactively prepares for the construction of a new smart factory, as well as taps the potential of existing plasma harvest stations and increases new plasma harvest stations to maintain a steady increase in plasma harvest volume. On the product side, the Company's R&D pipelines are progressing steadily; its prothrombin complex concentrate (PCC) and antihemophilic factor (factor VIII) may be approved for marketing in 2023. China National Pharmaceutical Group Corporation (Sinopharm) may become the actual controller of Weiguang Biological to further empower the latter's plasma harvest station business. Considering all these, we believe that Weiguang Biological will have clear growth visibility in the medium and long run. We assign the Company 40x 2023E PE to derive a target price of Rmb42 and initiate coverage with a "BUY" rating.
A differentiated pioneer of blood products in China adopting technological upgrading to break the short-term capacity bottleneck. Founded in 1985, Weiguang Biological is the only manufacturer of blood products in Shenzhen. The Company's blood products under R&D and production include three categories of human albumin, intravenous immunoglobulin (IVIG) and coagulation factor, covering nine varieties and 21 stock keeping units (SKUs). Weiguang Biological is also proactively expanding business footprints to other biomedical businesses, such as vaccines and genetic engineering products. Affected by expenses on technological upgrading, the Company's earnings declined slightly in 2022. Its 2022 revenue/attributable net profit (ANP) came in at Rmb668mn/121mn (-26.39%/-40.91% YoY), respectively. However, after the technological upgrading for capacity expansion was completed, Weiguang Biological's earnings recovered, recording 1H23 revenue/ANP of Rmb457mn/101mn (+97.18%/+115.47% YoY).
Organic growth and external expansion jointly boost plasma harvest volume, and private placement for capacity expansion supports medium- and long-term growth.
Weiguang Biological's 2022 annual report shows that the Company owned nine plasma harvest stations, with an aggregate plasma harvest capacity of 467 tonnes (+4.43% YoY) in 2022. Among them, Pingguo Guangming Plasma Harvest Station ranks at the forefront in China by plasma harvest capacity, while Wanning, Zhongshan and Ankang plasma harvest stations may contribute to growth in the Company's plasma harvest volume in the future. Weiguang Biological is also proactively preparing for a smart factory of blood products with annual input capacity of 800-tonne plasma. We estimate that after reaching full production capacity, the project can produce 2.24mn bottles of human albumin, 3.175mn bottles of human immunoglobulin, 3.7mn bottles of specific immunoglobulin and 700,000 bottles of coagulation factor every year. This project will help the Company further exceed its capacity limitation, expand its business scale and satiate its future demand for plasma input.
An expanding product portfolio may further increase revenue/profit per tonne of plasma in the future.
Weiguang Biological adheres to the innovation-driven development strategy, closely follows the development trend of the biopharmaceutical sector, and continues to focus on key fields such as blood products and vaccines. There are now many products in the Company's R&D pipelines, including PCC, factor VIII, new-type IVIG (10%), freeze-dried human rabies vaccine and fibrin sealant. We expect that the Company's PCC and factor VIII will be approved for marketing in 2023. On the product sales front, Weiguang Biological accelerates tapping the domestic market, proactively responds to China's Belt and Road Initiative (BRI), and continuously advances the internationalization of products. We believe that the Company's revenue/profit per tonne of plasma will grow continuously in the future.
Possible empowerment by Sinopharm through change of controlling shareholder.
On Jun 3, 2023, Weiguang Biological announced that China National Biotec Group (CNBG), a subsidiary of Sinopharm, planned to set up a joint venture with Shenzhen Guangming District State-owned Assets Supervision and Management Commission (SGDSASMC). According to the announcement, CNBG will hold 51% and SGDSASMC 49% of the equity of the joint venture. After the establishment of the joint venture, CNBG will transfer 5.96% equity of Tiantan Biological Products and SGDSASMC will transfer 35.25% equity of Weiguang Biological to the joint venture, both free of change. CNBG will become a controlling shareholder (42.50%) of Weiguang Biological through the joint venture and Wuhan Institute of Biological Products. After the establishment of the joint venture, Sinopharm will become the actual controller of Weiguang Biological. We believe that with enabling resources from a central enterprise, Weiguang Biological will further integrate industry resources and thus become a more competitive manufacturer of blood products.
Potential risks:
Insufficient supply of raw materials; disappointing progress in R&D of new products; potential product safety problems; results of offering and investment project missing expectations; intensifying market competition; and uncertainties brought by the change of controlling shareholder.
Earnings forecast, valuation and rating:
We estimate Weiguang Biological's 2023E/24E/25E ANPs to be Rmb235mn/270mn/315mn, corresponding to EPS forecasts of Rmb1.04/1.19/1.39. We refer to the 34x average 2023E PE (Wind consensus estimates) of comparable companies, Tiantan Biological Products (600161.SH), Hualan Biological Engineering (002007.SZ, excl vaccine business) and CR Boya Bio-pharmaceutical (300294.SZ). Weiguang Biological is a leading manufacturer of blood products in China. To expand its business scale, the Company proactively prepares for the construction of a new smart factory, as well as taps the potential of existing plasma harvest stations and increases new plasma harvest stations to maintain a steady increase in plasma harvest volume. On the product side, the Company's R&D pipelines are progressing steadily; its PCC and factor VIII may be approved for marketing in 2023 to expand the product portfolio. Sinopharm may become the actual controller of Weiguang Biological to further empower the latter's plasma harvest station business. Considering all these, we believe that Weiguang Biological will have clear growth visibility in the medium and long run. In view of the above, we assign the Company 40x 2023E PE to arrive at a target price of Rmb42 and initiate coverage with a "BUY" rating.
