Event: The company recently released its semi-annual report for 2023. 2023H1: Revenue was 1,785 million, up 1.1% year on year, net profit attributable to parent was 180 million, up 9.2% year on year, after deducting non-return net profit of 170 million yuan, up 6.2% year on year.

2023Q2: Revenue was $935 million, up 5.6% year on year, net profit attributable to parent was 130 million, up 17.9% year on year, net profit not attributable to parent was reduced to 130 million, up 19.5% year on year.

2023H1 is affected by the API business and the revenue side is under pressure, and the high increase in the nuclear drug business has led to an increase in net interest rates. 23H1's net return interest rate was 10.3%, an increase of 0.7 pct over the previous year. Look at it by business. 1) API business: revenue of 950 million dollars, down 11.9% year on year, of which revenue from heparin API, a key product, was 790 million yuan, down 15% year on year; 2) Nuclear drug business: revenue of 500 million yuan, up 19.2% year on year, of which the key product, 18F-FDG, revenue was 220 million yuan, up 18.5% year on year; Yunke injection revenue was 120 million yuan, up 22.7% year on year; Iodine [125I] sealed seed source achieved revenue of 0.8 billion yuan, up 51.3% year on year; 3) Formulation business: revenue: 260 million yuan, up 18.4% year on year. Among them, the key product, hydrocortisone sodium succinate for injection, earned 70 million dollars, an increase of 325% over the previous year.

2023Q2 The decline in APIs has slowed down, and the nuclear drug business has performed well: 23Q2, the net interest rate at the parent level was 14.3%, an increase of 1.45 pct over the previous year. Look at it by business. 1) API business: revenue was 540 million, down 2.2% year on year, 23Q1 revenue was 401 million, down 21.9% year on year. The decline in the second quarter slowed significantly; 2) Nuclear drug business: 18F-FDG revenue was 110 million, up 12.8% year on year, and Yunke Injection revenue was 0.7 billion yuan, up 25.5% year on year. The decline in the company's API business narrowed markedly in the second quarter, and the nuclear drug business continued to maintain steady growth. We are optimistic about the company's long-term development at an inflection point.

Nuclear drugs are rich in research pipelines, and the cutting-edge field of innovative nuclear drugs is ahead of schedule. According to the company's 2022 annual report, the main pipeline and progress: rhenium [188Re] etidronate injection (clinical summary report is being issued); Tau protein positrophotometry tracer (phase III clinical trial); 99mTc labeled tetridronine products (completed on-site inspection by the Central Inspection Institute); 177Lu-LNC1003 injection (approved for clinical trials in the US), etc., and the company uses Lanna to become a completely innovative nuclear drug research and development platform, lay out a series of innovative nuclear drugs in advance, and lock in huge space for nuclear drug diagnosis and treatment.

Investment suggestions: The company is on a high-barrier, oligopolistic nuclear drug scarcity racetrack. The nuclear pharmacy layout is leading in the country, and has built a rich pipeline of diagnostic and treatment nuclear drugs through a two-pronged approach of self-development+mergers and acquisitions. The logic of epidemic recovery is remarkable. With the penetration of domestic nuclear medicine applications and the accelerated expansion of equipment, the company's multiple pipelines are expected to gradually enter a harvest period, driving a new round of growth. We forecast net profit of $38/500 million for 2023-2024, maintaining a “buy” rating.

Risk warning: risk of raw material procurement and price fluctuations; demand for diagnosis and treatment of epidemic recovery falls short of expectations; risk of nuclear pharmacies being put into operation falls short of expectations; PET/CT installed capacity falls short of expectations; development of new nuclear drug products falls short of expectations.