23H1 revenue was in line with expectations and profit growth exceeded expectations. Indications for vumetinib have been fully expanded, and the market potential has been fully exploited. 20 The clinical data for exon insertion is impressive, and the ORR for first-line treatment is as high as 69%. Expense rates are well controlled, and the cash flow situation is improving positively. We adjusted the company's net profit forecast for 2023/24/25 to 340 million yuan/518 million yuan/698 million yuan. According to the DCF valuation method, we estimated that the company's reasonable valuation was about 16.9 billion yuan, corresponding to the target price of 38 yuan in 2023, and maintained the “buy” rating.

Revenue was in line with expectations, and the profit side achieved growth exceeding expectations. In 2023H1, the company achieved operating income, net profit attributable to income, and net profit not attributable to income of 749 million yuan (including milestone income of 35 million yuan), 208 million yuan, and 184 million yuan respectively, compared to +149.24%, +678.69%, and +3976.33%, mainly due to rapid growth in fumetinib sales. 2023Q2 Company achieved revenue of 472 million yuan, 174 million yuan, and 164 million yuan respectively; YoY +149.52%, +251.06%, and +292.72%, compared to 23Q1, +70.76%, +397.51%, and +730.16%, showing a rapid expansion trend.

Indications for vumetinib have been fully expanded, and the market potential has been fully exploited. First-line and second-line indications of vumetinib have been approved domestically and successfully covered by medical insurance. 2023H1 was significantly released, achieving sales revenue of 713 million yuan.

In addition, second-line indications of fumetinib for 20 exon insertion mutant NSCLC have been included as a breakthrough treatment type. Currently, it has been approved for phase II clinical registration in China; global phase III registered clinical trials for first-line treatment of 20 exon insertion mutations are underway; adjuvant treatment indications are currently in phase III clinical trials in China; first-line NSCLC treatment for EGFR PACC mutations or L861Q rare mutations has recently been approved domestically; with IN10018 (FAK inhibitor), Both RC108 (c-Met ADC) combination therapies are currently undergoing phase IB/II clinical trials in China; at the same time, the company continues to develop the therapeutic potential of volmetinib for various other indications.

20 Exon insertion clinical study data is impressive, with first-line treatment ORR as high as 69%. The company recently published an abstract on the official website of the 2023 World Lung Cancer Conference (WCLC) conference, updating the study data on 20 exons inserted into NSCLC patients (n=79). Among them, 30 first-line patients, 49 second-line patients, baseline age 59 years old, 29% of patients had brain metastases, and an ECOG score of 0/1 was 15.2%/84.8%. First-line treatment with vormetinib (240 mg QD) had an ORR of 69% (n=30), a second-line treatment high-dose group (240 mg QD) ORR of 50% (n=24), a second-line treatment low dose (160 mg QD) ORR of 40.9% (n=25), and the DCR for the three groups was 96.6%, 95.5%, and 90.9%, respectively. MPFs were 10.7, 7.0, 5.8 months; the incidence rate of treatment interruption due to unexpected adverse events in the three cohorts was 0%, respectively At 4.2% and 4.0%, volmetinib showed good efficacy and safety overall.

Expense rates are well controlled, and the cash flow situation is improving positively. 2023H1 invested 132 million yuan in R&D, +48.69% year-on-year, accounting for 17.66% of revenue (year-on-year -11.95pcts). Because of the sharp increase in revenue, R&D investment decreased as a share of revenue in revenue. 2023H1 sales expenses and management expenses were $370 million and $54 million, respectively, +117.21% and +27.27%; the sales expense ratio was 49.48% (year-on-year -7.29pcts), and the management expense ratio was 7.28% (year-over-year -6.97 pcts). The net operating cash flow of 2023H1 was 185 million yuan, a sharp increase over the previous year (2022H1 was 5.96 million yuan); as of 2023H1, the balance of cash and cash equivalents of the company was 475 million yuan, and the operating situation was good.

Risk factors: the risk that the company's new drug development has failed or progressed less than expected; the risk that the company's technology upgrades and product iterations fall short of expectations; the risk that commercialization of the company's products does not meet expectations; market competition increases the risk.

Profit prediction, valuation and rating: First-line indications of fumetinib were included in health insurance to achieve rapid dosage. The curative effect of inserting 20 exons was remarkable in clinical studies. At the same time, the company is actively expanding indications such as rare PACC mutations and promoting clinical research on combination therapy. According to 2023H1 performance (revenue met expectations, profit grew beyond expectations) and future market competition for similar products, we adjusted the company's 2023/24/25 net profit forecast to 340 million yuan/518 million yuan/698 million yuan (the original forecast was 276 million/516 million/736 million yuan). According to the DCF valuation method, it is estimated that the company's reasonable valuation is about 169 million yuan (beta coefficient is 1.3 billion, risk-free interest rate is 2.8%, stock risk premium is 5.0%), corresponding to the 2023 target The price is 38 yuan, maintaining the “buy” rating.