Event: when the company released its semi-annual report for 2020, its operating income in the first half of the year was 1.502 billion yuan, down 34.72% from the same period last year; the net profit from its mother was 228 million yuan, down 40.32% from the same period last year; and the net profit from non-return was 218 million yuan, down 39.54% from the same period last year. Of this total, Q2 realized revenue of 793 million yuan, down 33.22% from the same period last year, up 11.81% from the same period last year; net profit from its mother was 122 million yuan, down 37.39% from the same period last year, up 14.11% from the previous year; and deducting 116 million yuan from non-net profit, down 36.04% from the same period last year and up 14.45% from the previous year.

Q2 performance showed a month-on-month improvement.

In the first half of the year, the company's gross profit margin and net profit margin decreased slightly, and the rate of R & D expenses increased slightly compared with the same period last year. In the first half of the year, the net cash flow generated by the company's operating activities was 232 million yuan, down 16.07% from the same period last year. In the first half of the year, the company's gross profit margin was 90.04%, down 2.76pct from the same period last year, and the net profit rate was 15.15%, down 1.43pct from the same period last year. Of these, Q2 gross profit margin was 89.65%, down 2.99pct from the same period last year, and net profit rate was 15.31%, down 1.02pct from the same period last year. In the first half of the year, the proportion of expenses during the period of the company was 71.80%, which decreased 0.84pct compared with the same period last year, including sales expense rate 61.04%, year-on-year decrease of 0.64pct, management expense rate of 4.88%, year-on-year decrease of 1.06pct, R & D expense rate of 6.63%, year-on-year increase of 1.28pct, financial expense rate of-0.75%, and decrease of 0.42pct.

The epidemic has brought negative effects in the first half of the year, and growth is expected to resume in the second half of the year. In the first half of the year, sales of digestive products were 1.058 billion yuan, accounting for 70.47% of revenue, down 39.16% from the same period last year; sales of anti-tumor products were 322 million yuan, accounting for 21.48% of revenue, down 35.95% from the same period last year; sales of other products were 102 million yuan, accounting for 6.80% of revenue, an increase of 124.06% over the same period last year The revenue of other businesses was 1.8795 million yuan, accounting for 1.25% of the revenue, up 59.83% from the same period last year. Affected by COVID-19 's epidemic situation, the number of outpatients and operations in domestic hospitals were greatly affected in the first half of the year, which greatly affected the sales of the company's injection-based products. The epidemic situation tended to ease in the second quarter, and medical institutions gradually returned to normal operation. In the first half of the year, the PPI products of some provinces of Ausaikang won the bid, but the core provinces of the country still maintained the qualification to win the bid, and some new provinces were added.

Since the new analgesic drug "pareoxib sodium for injection" entered the market in the second half of 2019, 25 provinces have been successfully connected, showing a good growth trend; the first domestic DPP-4 inhibitor, Saglitine tablets for the treatment of Ⅱ diabetes, has been linked to cover 27 provinces, and it is expected to achieve rapid growth through policies such as the use of drugs in two diseases and supporting over-evaluated drugs to replace the original research and development.

R & D investment maintained high growth, innovative drugs + high-end first imitation series steadily promoted the company's R & D investment of 220 million yuan in the first half of the year, an increase of 51.71% over the same period last year, accounting for 13.32% of sales revenue. The company focuses on four major treatment areas: digestive tract ulcers, tumors, drug-resistant bacterial infections and diabetes. Consolidate the leading edge of proton pump inhibitor injection product group, the product line covers five of the six PPIs listed in China, most of which are the first or the first batch to go on the market. The company is in the forefront in the consistency evaluation of injections, not only in China, but also in a leading position in the progress of each variety. All the five PPI injections listed on the market have submitted applications for consistency evaluation, of which 3 are the first in China and 2 are the second in China.

Posaconazole injection, enteric-coated tablets and right rabeprazole sodium for injection are all the first reported production in China, and are expected to be the first to appear on the market within this year; levopantoprazole sodium for injection and polymyxin E sodium methanesulfonate for injection are the second reported production in China. It is also expected to be approved to go on the market within this year.

In the field of oncology, the third-generation EGFR inhibitor class 1 innovative drug ASK120067 targeting T790M can be conditionally approved to market after the completion of the clinical phase Ⅱ study. At present, the Ⅲ phase clinical study of the first-line drug is also being carried out at the same time. This year, due to the impact of the epidemic, patient enrollment and follow-up have been affected to varying degrees, the company's clinical team has taken targeted measures, such as the use of information technology, combined with the opinions of statistical experts and clinical experts, as far as possible to obtain test-related data and information in time to reduce the shedding of cases. With the gradual relief of the epidemic across the country, clinical research has returned to normal. It is expected to complete the Ⅱ phase clinical enrollment by the end of the year and apply to CDE for listing in 2021. In addition, the anti-tumor biological innovative drug ASKB589 injection, which is intended to be used for gastric and gastroesophageal junction adenocarcinoma, pancreatic cancer and other indications, has been approved clinically, and no similar products have been approved to market at home and abroad, which is expected to further enrich the echelon of innovative drug products.

Innovation + high-end first imitation multi-point blossom, optimistic about the company's long-term development to maintain the "buy" rating company as the domestic leading enterprise of PPI injection, PPI injection forms a "product echelon + consistency declaration leader + differentiated chiral PPI", which is expected to occupy a comparative advantage in injection collection in the future. In the field of oncology, drug-resistant bacterial infection and diabetes, the company's forward-looking layout is expected to create a new performance growth point in the future. In the long run, the company is developing a number of important "innovative drugs + high-end first imitation"

The differential layout of series varieties is expected to be transformed successfully by means of "independent research and development + variety introduction". Considering the impact of the epidemic and the potential injection collection in the future, we reduced the company's net profit from 880 million yuan (yoy+12.68%), 1.043 billion yuan (yoy+18.47%) and 1.203 billion yuan (yoy+15.39%) to 721 million yuan (yoy-7.66%), 804 million yuan (yoy+11.52%) and 921 million yuan (yoy+14.47%) from 2020 to 2022, corresponding to 25 times, 22 times and 19 times of PE respectively.

Risk hints: new drug research and development risk; drug review progress is slower than expected; product sales are lower than expected; injection collection price reduction risk