Event: the company released its third quarterly report in 2023. In the first three quarters of 2023, the company realized revenue of 3 billion yuan (year-on-year + 14.0%), net profit of 830 million yuan (year-on-year + 9.4%), and non-net profit of 800 million yuan (+ 13.9%). Q3 alone achieved revenue of 1.08 billion yuan (year-on-year + 24.2%), home net profit of 300 million yuan (year-on-year + 37.9%), deduction of non-net profit of 290 million yuan (year-on-year + 43.0%). Compaq sales rhythm is in line with expectations.

The performance exceeded expectations and Compaq continued to sell volume. In terms of business, the income of the biological products sector in the first three quarters of 2023 was 1.46 billion yuan (year-on-year + 36.9%), the chemical medicine sector 530 million yuan (year-on-year-18.6%), and the proprietary Chinese medicine sector 1 billion yuan (+ 10.8% year-on-year). In the context of changes in the external environment in the third quarter, the company's performance exceeded expectations. Compex was included in the national health insurance catalogue in January 2023 and new indications RVO, leading to the rapid growth of the biological products sector. although there are more anti-VEGF products under development, from the penetration level and price reduction level, we believe that the future market potential of Compaq still has great room for growth, which is still an important variety for the company, and is expected to continue to contribute to performance increment in the follow-up.

Profitability improvement, looking forward to the follow-up realization of the new product. The company's gross profit margin and net profit margin in the third quarter of 2023 were 89.7% (+ 0.3pct) and 27.5% (+ 2.6pct), respectively. (1) overall, the expense rate decreased in the third quarter, with a single Q3 sales expense rate of 40.3% (- 2.3pct), management expense rate of 9.3% (- 0.4pct), R & D expense rate of 8.2% (- 3.6pct), and financial expense rate of-1.3% (+ 0.4pct). (2) the follow-up pipeline is rich, and the variety is expected to be realized one after another. 1) proprietary Chinese medicine plate, Shugan Jieyu capsule for the treatment of mild to moderate depression may be included in the base drug catalogue in the future, and this variety has more room for growth. The new drug KH110 (Wujia Yizhi granule for the treatment of Alzheimer's disease) is undergoing Ⅱ b clinical trial, and the follow-up clinical results are worth looking forward to. 2) in the biological products section, the ophthalmic drug KH631 is a new biological drug used to treat neovascularization (wet) nAMD1 by delivering target genes through adeno-associated viruses. it has the characteristics of tissue specificity, immunogenicity, controllable expression and infection efficiency, and shows sustained efficacy in preclinical disease models. 3) in the chemical medicine section, KH617 for injection is a class 1 innovative drug independently developed by the company for the treatment of advanced solid tumor patients (including adult diffuse glioma), and it is also the first product declared by the company's synthetic biology platform in clinical trials. KH617 was certified as an orphan drug for glioblastoma by FDA in the United States on February 14 this year.

Profit forecast and valuation. We estimate that the net profit of homing in 23-25 will be 10.0 trillion yuan respectively, an increase of 12.0%, 21.0% and 20.2% over the same period last year. In view of the new increment brought by the approval of the company's new indications this year, the huge growth space for relieving liver and relieving depression in the traditional Chinese medicine business and the potential value of innovative traditional Chinese medicine for Alzheimer's disease, maintain the "buy" rating.

Risk tips: the risk that the sales of core products are not as expected; the risk of collection or health insurance price reduction; the risk that the progress of research and development is not as expected.