Events:

On August 31, 2021, the company released its semi-annual report of 2021: the total operating income was 1.907 billion yuan, an increase of 81% over the same period last year, and the net profit returned to its mother was 611 million yuan, an increase of 307.6% over the same period last year, which was consistent with the previously disclosed performance of KuaiBao.

Comments:

Sihuan Meimei + Biopharmaceutical two-wheel drive, the transformation results are gradually realized. In recent years, under the influence of policies such as two-vote system, volume procurement and national drug key monitoring catalogue, the company's revenue and profit growth fluctuates greatly. However, with the forward-looking layout of medical beauty, innovative drugs and other fields in the early years, and in the development dilemma that the traditional main industry encountered policy and environmental disturbance, in 2020, the company made clear the two-wheel drive strategy of fourth Ring Medical Beauty + Biopharmaceutical, and transformed to medical beauty and high-quality medicine. The results of 1H21 transformation have gradually emerged: revenue volume of non-key monitoring catalogue products + Botox listing provides increments; at the same time, absolute R & D investment on the cost side is basically the same as last year, administrative expenses are properly controlled, and rates are significantly saved compared with the same period last year; high revenue growth + rate savings, and home net interest rate (continuing business) increased 16pcts to 32.1% compared with the same period last year.

Specific business point of view:

1. Letibao put its volume on the market quickly, and the comprehensive layout of medical and beauty pipelines advanced steadily. Since its listing in February, Letibao has sold more than 200000 units, realized an income of 258 million yuan, an operating profit of 199 million yuan, and an operating profit margin of 77%. By the end of July, it had covered 80% of the head institutions (400) and 1800 terminal institutions, and the number of institutions covered by the end of the year is expected to reach 3000. Letibao botulinum toxin focuses on high quality, high effect, high safety, fast onset time, long maintenance time, painless injection process and high performance-to-price ratio, filling the gap in the current market price of botulinum toxin, and the market share is expected to reach 30% within 3 years. Support the rapid growth of short-term medical and beauty business. At the same time of the rapid release of Botox, a number of new "self-research + agent" products have been listed within three years, supporting the company's medium-and long-term medical and beauty performance growth: the hyaluronic acid of the South Korean Hugel manufacturer represented by the company is expected to be approved by the end of 2021; Tong Yan Shui Ning, a self-developed product of Sihuan Medical and Beauty, is expected to be approved for listing by the end of 2021. Through foreign product agents, the introduction of foreign technology transformation and independent development, it is expected that from 2023 to 2025, a number of products such as collagen, child needles, young girl needles, fat-dissolving drugs and other products will be registered.

2. The volume of non-key monitoring catalogue products has been greatly improved. 1H21 focused its sales resources on non-key monitoring catalogue products. In the first half of the year, the performance of generics in the non-key monitoring catalogue increased by 122% to 1.19 billion compared with the same period last year, driving generic drug revenue up 68% to 1.51 billion, of which the contribution of generic drugs in the non-key monitoring catalogue increased to 79% from 60% in the same period last year. Benefiting from the optimization of product sales structure and the emergence of economies of scale, the operating profit margin of generics increased by 10pcts to 61 per cent compared with the same period last year. At present, the company's generic drug research and development platform has 100 products under research, including 53 high-end imitation pharmaceuticals with high technical barriers, enriching the existing product pipeline and ensuring that a certain number of products can be approved for production and enter the market every year to support the continuous growth of future income and profit cash flow.

3. Innovative drugs and other drugs are in the investment / incubation stage. 1H21 revenue increased by 11% to 140 million yuan compared with the same period last year, and operating profit was-270 million (the same period last year-160 million). 1) the layout and coverage of long -, medium-and short-term pipelines of innovative drug products are more balanced. Anaprazole Sodium and Pirosini, the blockbuster products of Xuan Bamboo Biology, are expected to go on the market and increase in sales within two to three years. Huisheng Biology has achieved full product coverage in the field of diabetes and complications. 1.1 new drugs, insulin injection 30 and insulin 50 injection, which are similar to biological drugs, are planned to be put on the market gradually by the end of 2022. The fourth generation of blockbuster bioanalogues such as Degu Insulin injection will also be approved and put on the market one after another in the future to bring great revenue growth. The company is expected to become China's leading biomedical enterprise with the ability of independent research and development of fully innovative drugs in both small and macromolecular fields. 2) the business of industrial hemp and CDMO is still in the incubation period. At present, the number of API and CDMO manufacturers reaches more than 10, and the number of customers at home and abroad is more than 150. it is also expected to provide new performance growth points in the future.

Investment suggestion: Sihuan Meimei + Biopharmaceutical double-round strategy is advancing steadily, the Botox performance-price ratio of the medical plate is expected to be outstanding in the short term, and the subsequent hydration needle / hyaluronic acid will be launched one after another to support medium-term performance growth; under the strong sales realization ability of the pharmaceutical plate, imitation pharmaceuticals provide cash flow, innovative drugs are in research and development products are rich, and blockbuster products will be listed in the next three years. It is estimated that the company's revenue for 21-23 years will be 40.2, 558, 8.06 billion yuan, a growth rate of 61%, 39%, 45%, 10.0, 14.2, and 2.17 billion yuan, respectively, with a growth rate of 112%, 42%, 52%, and an EPS of 0.11, 0.15, 0.23 yuan. Give "recommendation".

Rating.

Risk hint: the progress of product qualification application is not as expected, the change of medical policy is higher than expected, and the promotion of medical beauty is not as expected.