1H23 performance is in line with our expectations

Tonghua Dongbao announced its results for the first half of 2023: the company's operating income was 1.366 billion yuan, down 1.53% from the same period last year, and its net profit was 485 million yuan, down 59.00% from the same period last year, mainly because of an investment income of 897 million yuan in the same period last year. Net profit after deducting non-recurrent profits and losses was 480 million yuan, an increase of about 8.75% over the same period last year. 1H23 performance is in line with our expectations.

Trend of development

Business performance achieved restorative growth in the first half of 2023. The revenue of 2Q23 reached 700 million yuan, an increase of 40.2% over the same period last year and 5.4% from the previous year, while the net profit from non-return was 230 million yuan, an increase of 346.9% over the same period last year. In the second quarter alone, the company's gross profit margin was 77.5%, an increase of 2.0% over the same period last year, which was basically the same as the previous quarter. We believe that the company's operating results have achieved restorative growth in the first half of 2023.

Core products maintain a leading position in the market. In the first half of 2023, the sales of the company's full range of insulin products achieved double-digit growth compared with the same period last year, in which human insulin sales grew steadily compared with the same period last year, and insulin analogues maintained a high growth trend. According to the company announcement and Rubik's cube data, the company's insulin market share was 44.6% in the first half of 2023, ranking first in the country.

Research and development in the field of diabetes and gout has been further advanced. According to the company announcement, as of August 21, 2023, the company's gout drug URAT1 inhibitor clinical IIa trial has completed database locking and blindness; the company's first clinical phase of gout dual-target XO/URAT1 inhibitor clinical phase I trial has completed the first subject in the group. In addition, with regard to diabetes, the company's application for clinical trials of oral small molecule GLP-1 receptor agonists has been accepted, and the company expects Lilarutide injection and Englerjing tablets to be approved for market by 2023. We believe that the company is expected to further cultivate the field of metabolic diseases based on its experience in the field of diabetes.

Profit forecast and valuation

We keep the net profit per share forecast for 2023max at 0.54 yuan / 0.65 yuan per share in 2024. The current share price corresponds to a price-to-earnings ratio of 18.2 times 2024 / 15.1 times earnings. We maintain an outperforming industry rating, but taking into account the recent downward shift in the valuation center of the industry, we cut our target price by 7.0% to 13.24 yuan, corresponding to a price-to-earnings ratio of 24.6 / 20.4 times 2023 Universe in 2024, which is 35.0% higher than the current share price.

Risk

The quantity of insulin products is lower than expected, and the progress of research and development is not as expected.