Product restructuring combined with cost reduction and efficiency measures, net profit for the first half of the year was +28% year-on-year. The company's 2023H1 achieved operating income of 685 million yuan, an increase of 6.68% over the same period of the previous year, and realized net profit attributable to owners of the parent company was 134 million yuan, an increase of 28.09% over the same period last year. On the one hand, the year-on-year improvement and increase in profit was significant. On the one hand, non-foot-and-mouth disease combination immunization products with high gross margin grew faster and their share increased in proportion in the first half of 2023; on the other hand, production efficiency of core products continued to improve, and costs fell year-on-year. On a quarterly basis, 23Q2 achieved revenue of 321 million yuan, an increase of 7.00% over the same period last year, and achieved net profit attributable to owners of the parent company of 28 million yuan, an increase of 16.67% over the same period last year, mainly due to improved core product costs and rapid growth in non-foot-and-mouth disease vaccines.

Adhere to R&D innovation and strive for multi-line layout. The company has increased its investment in independent R&D and joint innovation in recent years. In the first half of 2023, R&D expenses increased 20.68% year-on-year to 64.5516 million yuan, accounting for 9.43% of revenue. In terms of non-plague vaccine research and development, the company has established an integrated research and development platform for the African swine fever vaccine based on the P3 laboratory, and is also carrying out research on multiple technical routes for gene-deficient vaccine, subunit vaccine, adenovirus vaccine, and mRNA vaccine. After years of basic research and extensive animal safety and efficacy evaluations, the company has made a major breakthrough in the research and development of the African swine fever vaccine. The China swine fever subunit vaccine jointly developed by the company and the Institute of Biophysics of the Chinese Academy of Sciences has officially submitted emergency review materials for the African swine fever subunit vaccine to the Ministry of Agriculture and Rural Affairs. In terms of multi-valent vaccine research and development, the company's swine foot-and-mouth disease VLP vaccine, swine fever E2 protein subunit vaccine, porcine pseudorabies gene-deficient inactivated vaccine, Senega Valley inactivated vaccine, porcine parvovirus genetically engineered inactivated vaccine, mycoplasma bovine vaccine, bovine clostridium inactivated vaccine, sheep brucellosis (Rev.1 strain) novel live vaccine, neococcal triplet inactivated vaccine, and novel influenza quadruple inactivated vaccine are all in the new veterinary drug registration stage, and are expected to make phased progress in 2023.

Laying out pets and changing the organization is expected to open up room for growth. The company and Kyoritsu Pharmaceutical Co., Ltd. of Japan jointly invested in the establishment of a joint venture pet vaccine company, Jinyu Kyoritsu Co., Ltd. Currently, independent pet vaccine research and development and review of bacterial strains are progressing steadily. The laboratory and pet vaccine and drug production workshop have completed mechanical and electrical installation and commissioning. Currently, the cat triple vaccine has been submitted to the Ministry of Agriculture and Rural Affairs for emergency evaluation, the dog quadruple vaccine has entered the registration stage for the new veterinary drug, and clinical trials of the quadruple vaccine for cats are progressing smoothly. At the same time, the company is carrying out organizational changes in the marketing system, introducing outstanding talents from the industry, and forming a more professional and dynamic marketing team. The penetration rate and sales volume of non-foot-and-mouth disease products have all increased, and it is expected to contribute to new growth in performance in the future.

Risk warning: An uncontrollable outbreak occurred during breeding, and vaccine batch issuance progress fell short of expectations.

Investment advice: Maintain a “buy” rating. The company is a leading pig vaccine company in China. It is optimistic that the recovery in pig prices will drive performance recovery in the medium term, and the growth potential brought about by non-plague vaccine research and development in the long term. We expect the company's net return in 23-25 to be 2.5/38/360 million yuan, EPS is 0.23/0.34/0.32 yuan, and the corresponding PE share price is 40.4/27.3/28.8X.