[Report Summary]:

On August 29, 2023, the company released its 2023 semi-annual report. 2023H1 achieved operating income of 469 million yuan (+22.91%); net profit of 160 million yuan (+30.22%); net profit of 153 million yuan after deducting non-return net profit of 153 million yuan (+30.68%).

Management analysis

The release of production capacity has led to high growth in specialty APIs. During the reporting period, after excluding CXO, the company's business, which mainly focuses on specialty APIs, achieved revenue of 239 million yuan (+47.5%). The company continues to promote production capacity construction to promote large-scale mass production of excellent products with mature processes and strong profitability. The construction of new production capacity is progressing in an orderly manner. Currently, all 7 workshops for non-public investment projects have completed plant construction. Of these, 1 workshop has completed completion and acceptance, 3 workshops are undergoing trial production, 1 workshop has completed equipment installation, and 2 workshops are awaiting equipment installation.

Promote the steady growth of the CRO/CDMO/CMO business through the integration of “intermediates+specialty raw materials+formulations”. During the reporting period, the company's CRO/CDMO/CMO business achieved sales revenue of 230 million yuan, accounting for 49.04% of the company's revenue, an increase of 4.69% over the previous year. By the end of the reporting period, the company had a total of 26 CRO/CDMO/CMO business projects (YOY+7) in progress, including 12 API projects (YOY+1) and 14 advanced intermediate projects (YOY+6); of these, 13 clinical-stage projects (YOY+1) and 13 commercialization projects (YOY+6).

R&D investment has increased, leading long-term growth. During the reporting period, the company invested 479.022 million yuan (+66.5%) in R&D, and the R&D cost rate was 10.22% (+2.68 pct). The company fully cooperates with well-known universities and research institutes at home and abroad, gives full play to the advantages of contract customization and cooperative R&D models, and adheres to the independent research and development path of introduction, digestion and innovation. In terms of innovative drugs, phase II clinical trials of the company's innovative drug brozopentone sodium have been completed and will soon enter phase III clinical trials, which is expected to bring new growth points.

Profit Forecasts, Valuations, and Ratings

We expect the company's net profit to be 313/412/555 million yuan from 2023-2025, corresponding PE to 25/19/14 times, respectively, and maintain the “buy” rating.

Risk warning

Product development and technological innovation risks, policy supervision risks, environmental risks, production safety risks, exchange rate fluctuation risks, and the risk of restricted shares being unbanned.