Earnings plunged 28%, stock price crashed! What's wrong with the 'vaccine leader'?

The performance is decent, but the stock price has collapsed.

Known as the "vaccine leader," the industry giant Zhifei Biological has been experiencing severe setbacks recently. Since the end of November last year, Zhifei Biological has started a new round of decline. In less than half a year, its stock price has halved, and its market value has fallen below the 100 billion yuan mark.

On April 22, Zhifei Biological released its 2023 annual report and 2024 Q1 financial report. The report shows that in 2023, the company achieved revenue of 52.918 billion yuan, a year-on-year increase of 38.30%; net profit attributable to shareholders of the listed company was 8.07 billion yuan, a year-on-year increase of 7.04%; and net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 7.915 billion yuan, a year-on-year increase of 5.40%.

Judging from the annual report, Zhifei Biological's performance is commendable. But the problem lies in the Q1 report.

According to the Q1 report, Zhifei Biological's revenue in Q1 was 11.396 billion yuan, a year-on-year increase of 2%; net profit attributable to shareholders was 1.458 billion yuan, a year-on-year decrease of 28.26%; and net profit attributable to shareholders after deducting non-recurring gains and losses was 1.455 billion yuan, a year-on-year decrease of 28.36%.

After the financial report was released, on April 23, the "vaccine leader" suffered a heavy blow at the opening, with its stock price plunging by over 15% intraday. By the close, it was still down nearly 12%.

So what exactly happened to Zhifei Biological that led to its continuous stock price decline? What signals does its performance decline send?

First, as a leading company in the vaccine industry, Zhifei Biological's stock performance is not the worst in the sector. Over the past three years, affected by centralized procurement and the end of the pandemic, the performance of stocks in the pharmaceutical industry has been poor, especially in the vaccine sector.

Statistics show that Zhifei Biological has fallen over 42% year-to-date; Walvax Biotechnology has dropped nearly 40%; CanSino Biologics has declined nearly 35%; Shenzhen Kangtai Biological Products has fallen over 26%; even the recently popular Wantai Biological Pharmacy Enterprise has dropped 12% year-to-date...

From a sector perspective, the pharmaceutical sector is one of the few that has not rebounded significantly since the beginning of the year. The industry's awkward situation and low investor attention are also reasons for Zhifei Biological's sharp decline.

Second, unlike other biotech vaccine companies, Zhifei Biological's performance is supported by several star agency products. In other words, Zhifei Biological is essentially a biotech vaccine agency company. According to its 2023 performance, agency products contributed 98.05% of its revenue.

In January 2023, Zhifei Biological renewed its agency agreement with Merck & Co. for multiple products, including HPV vaccines, with a total base procurement amount exceeding 100 billion yuan. Specifically, in 2023, the batch issuance volume of Zhifei Biological's nine-valent HPV vaccine surged 136.16% to 36.5508 million doses, while the four-valent HPV vaccine dropped 26.27% to 10.3434 million doses.

Notably, although Zhifei Biological's agency vaccine products contribute most of its revenue, the downside is that the gross margin of these products is not high. According to the financial report, in 2023, the gross margin of its agency products was 25.68%, a year-on-year decrease of 10.4%. This is also why Zhifei Biological's revenue increased without a corresponding profit increase, making the market panic at the slightest sign of performance fluctuation.

Finally, over the past three years, as the vaccine industry has performed poorly, most funds have reduced or cleared their positions. Taking Zhifei Biological as an example, by the end of 2023, 1,178 funds held Zhifei Biological, but by the end of Q1 2024, this number had dropped to 178.

From the perspective of fund holdings, due to its continuous stock price decline, market attention has been relatively low. However, from the overall situation of the vaccine industry, after three years of decline, most vaccine companies have digested the bubble caused by pandemic demand and expansion, with many companies' stock prices falling over 80%, even returning to levels from five years ago.

Kan Jian Finance believes that the oversold status of the vaccine industry is now an indisputable fact. As the negative impacts of the pandemic, medical anti-corruption, and centralized procurement gradually fade, the vaccine sector is expected to return to its pre-pandemic steady growth trajectory. Therefore, from a long-term perspective, the industry's valuation is likely to recover. With future performance improvements, the industry may become a new market focus.