The company is a leading medical polyethylene glycol and derivative products R & D and production enterprises, with core technology patents / Know-how moat. 2023H1's revenue and profits have declined due to multiple factors, but with the terminal volume and clinical promotion of downstream customers' commercial products, we expect revenue to return to the growth track in the next few years. In addition, under the two-wheel drive of polyethylene glycol derivative materials and independent R & D products, the company insists on continuous innovation investment in new technologies and new applications, which is expected to open up long-term space. At the same time, the company's profit model is diversified, and we expect that the income from the transfer of rights and interests from the research products will bring a new increase in performance.

To sum up, we give the company 47 times PE in 2023, corresponding to the target price of 120 yuan, maintaining a "buy" rating.

Due to the reduction of downstream customer delivery orders and the cessation of Tepco biological sales commission technical service fees, the company's performance fluctuated. The income of 2023H1 company is 171 million yuan,-20.18% compared with the same period last year; the net profit of returning to mother / deducting non-return to mother is 68.26 million / 66.78 million yuan, which is 38.73% compared with the same period last year. Of which 23Q2 income is 78.6 million yuan,-31.00% compared with the same period last year, and the net profit of returning / deducting non-return is 21.18 million / 23.27 million yuan, which is-64.14% and 56.05% compared with the same period last year.

During the reporting period, equity incentive fees generated were 10.9 million yuan, compared with 18.81 million yuan in the same period last year.

In terms of profitability, 23H1 gross profit margin is 78.22%, year-on-year-6.99pcts; return to mother / deduction non-return net profit is 39.82%, 38.96%, year-on-year-12.05pcts/-5.81pcts. 23Q2 gross profit margin is 69.63%, year-on-year-14.54pcts; net return / deduction net profit rate is 26.94%, 29.60%,-24.90pcts/-16.87pcts, respectively. The sales / management / R & D / financial expense rates of 23H1 are 2.75% 13.99% 16.44% Universe 1.13%, respectively, compared with the same period last year-0.88/+2.80/-3.55/+1.30pcts (total-0.33pcts).

Product sales are affected by multiple factors in the short term, and revenue and gross profit margin have declined. In terms of business, the sales revenue of 2023H1 products was 155 million yuan, down 17.23% from the same period last year. From a sub-regional point of view, the domestic sales revenue of the products was 67.5673 million yuan, down 12.28% from the same period last year, mainly due to the decline in the number of orders requested by domestic downstream customers during the reporting period. The export revenue was 86.9926 million yuan, down 20.70% from the same period last year, mainly due to the decrease in LNP (Lipid Nanoparticle) revenue and the decrease in order delivery by some downstream customers due to research and development progress and stock preparation. The sales revenue of foreign medical devices maintained a steady growth. Excluding the impact of LNP sales revenue, the sales revenue of foreign products increased by 2.05% over the same period last year. Product sales gross margin 75.84%, year-on-year-7.14pcts; we judge that the decline in product sales gross profit margin is mainly due to: 1. Capacity utilization is slightly lower than the peak; 2. The synthesis process of individual products is complex and the cost is high. 3. Improve quality management and other systems and increase investment. 2023H1's revenue from technical services totaled 16.3401 million yuan, down 40.7 percent from the same period last year. According to the company's mid-2023 report, previously, the company's technical service income mainly came from the commission on the sales of Tebao Biological Polyethylene Glycol Interferon α-2b injection, but since April 2023, the company has no longer collected a sales commission from Tebao Biological for this product.

New capacity expansion + new capacity building + new product research and development, continue to enhance the company's core competitiveness. Since 22Q4, the company has increased the investment in the production line of polyethylene glycol and its derivatives, increasing the investment scale from the previously planned 150 million yuan to 440 million yuan. After the additional investment scale, a new production line of Dobby polyethylene glycol and six polyethylene glycol derivatives has been added, and it has the production capacity of PEG derivative gel, antibody coupling drug, PEG protein and small nucleic acid drug for injection. The purpose of this adjustment is to aim at the future development direction of the industry, promote the engineering and industrialization of polyethylene glycol technology, improve the company's pan-polyethylene glycol materials and R & D platform, and lead biomedical innovation with material innovation. By the end of Q2 in 2023, the company's projects under construction reached 304 million yuan (year-on-year + 217.5%). According to the company's mid-2023 report, in the research project, the II phase of the PEG- irinotecan project has been completed, the phase III clinical program has been approved by CDE, and other preparatory work is being carried out in coordination with regulatory requirements; the second indication breakthrough treatment of glioma phase II clinical has begun to enter the group. In terms of medical equipment, the polyethylene glycol cross-linked sodium hyaluronate project has begun clinical practice. At present, all subjects have been enrolled in the group and entered a 6-month follow-up period. The company expects to complete the clinic in November 2023. We judge that with the gradual fall of the company's new production capacity and the continuous promotion of self-developed products, the company's performance is expected to pick up gradually.

Risk factors: core technology iteration risk; technology and products can not meet customer demand risk; innovative pharmaceutical product research and development failure risk; intellectual property disclosure or infringement risk; downstream end product marketing or life cycle management risk.

Investment suggestion: the company is a leading R & D and production enterprise of medical polyethylene glycol and derivative products in China, with core technology patents / Know-how moat. 2023H1's revenue and profits have declined due to multiple factors, but with the terminal volume and clinical promotion of commercial products from downstream customers, we expect that revenue will gradually return to a rapid growth trend in the next few years; in addition, under the two-wheel drive of polyethylene glycol derivative materials and independent R & D products, the company insists on continuous innovation investment in new technologies and new applications, which is expected to open up long-term space and new increments in performance. Taking into account the periodic fluctuations in downstream customer demand and the impact of sales commission technical service fees on the company's performance, we adjust the company's EPS forecast for 2023-2025 to RMB 2.54 3.45 EPS (the original forecast is RMB 3.97 PE 6.66 yuan), and the current price is 38x/28x/20x respectively. With reference to the current comparable companies (Haoyuan Pharmaceutical, Oppman, Nanwei Technology, based on Wind consensus expectations), the average PE in 2023 is 39 times, and considering that the company has a certain premium space as the leader of medical polyethylene glycol and derivatives, the company is given 47 times PE in 2023, corresponding to the target price of 120 yuan, maintaining the "buy" rating.