Huadong Medicine (000963 CH) is well-positioned for earnings growth and a rerating in 2022E, driven by improving fundamentals, reflected in the recovery of existing businesses, the launch of its innovative pipeline, plentiful partnerships, rapid development of microbial engineering, and robust revenue growth from new aesthetic medicine launches domestically and internationally. The company's increased R&D investment is expected to drive higher net profit estimates for 2021E/2022E/2023E to RMB2.47/3.06/3.92bn (previous: RMB2.54/3.18/4.02bn). The SOTP-based target price is RMB44.78 (previous: RMB47.11). The company's pharmaceutical manufacturing business is expected to stabilize, with sales of Bailing Capsule, Acarbose, and others expected to stabilize. The company is also building a microbial engineering platform by tapping into API & advanced intermediates, special function chemicals, wellness & aesthetic medicine, bio-materials, and enzyme preparations. The company has launched its series of innovative drugs and biosimilars from 2022.
