Q3 Performance grew rapidly, and Su Ling continued to expand. The company released the report for the third quarter of 2023: In the first three quarters of 2023, the company achieved revenue of 720 million yuan (+22.46%, same increase, same below), net profit of 149 million yuan (+43.37%), net profit of 149 million yuan (+43.37%), and net profit of 138 million yuan (+146.74%) after deducting non-return net profit of 138 million yuan (+146.74%). Looking at Q3 alone, the company achieved revenue of 269 million yuan (+24.40%), net profit of 56 million yuan (+157.69%), net profit of 56 million yuan (+157.69%), and net profit of 53 million yuan (+146.44%) after deducting non-return net profit. The gross profit margin for single Q3 was 90.44% (+4.88pp), up 0.90pp from the previous month; the net profit margin was 22.09% (+10.67pp). In terms of expenses, Q3 sales expenses and management expenses were $125 million (+7.24%) and $0.24 million (-8.06%), respectively, with expense rates of 46.42% (-7.43pp) and 8.92% (-3.15pp), respectively. Benefiting from rapid revenue growth after Suling's health insurance contract renewal and lifting of restrictions, the company's profitability continued to improve. The company grasped Su Ling's opportunities for medical insurance renewal and lifting restrictions, increased terminal market coverage, and promoted the rapid release of Su Ling. Furthermore, Su Ling's application for registration of a new drug with indications for dogs has already been accepted, and the development of a pet drug track is expected to extend Su Ling's life cycle and further open up product space. Close coverage of domestic generic drugs has not yet passed the consistency evaluation, and the competitive pattern is good; furthermore, local collection has little impact on the company's revenue. The company's performance is expected to continue to maintain a good growth trend.

Research and development investment continues to increase, and many KC1036 clinical trials are progressing steadily. The company continued to increase R&D investment. In the first three quarters of 2023, the company's R&D expenses were 67 million yuan (+22.87%), the cost rate was 9.34% (+0.03pp); the cost rate for Q3 was 27 million yuan (+41.32%), and the cost rate was 10.00% (+1.20pp). The innovative R&D pipeline is progressing steadily. Among them, KC1036, as a multi-target receptor tyrosine kinase inhibitor developed by the company itself, such as ALX, VEGFR, and CSF-1R, has observed significant clinical efficacy and good safety in various solid tumors such as esophageal cancer, gastric cancer, thymus cancer, cholangiocarcinoma, lung adenocarcinoma, etc. At present, many phase II clinical trials of KC1036 are being actively promoted, and KC1036 pediatric phase II clinical applications have been accepted, and it is expected that more phased results will be read in the future.

In addition, the company's Jincao tablets are the only active part preparation of traditional Chinese medicine with accurate targeting of “chronic pelvic pain, sequelae of pelvic inflammatory disease, chronic pelvic pain” approved for clinical use by the State Drug Administration. Currently, patients have been enrolled in phase III clinical trials; KC-B173 (recombinant seven human coagulation factors) is currently undergoing non-clinical research according to plan.

Investment advice: We maintain our original profit forecast. We expect the company's net profit from 2023-2025 to be 1.28/1.42/167 million yuan, respectively, with a growth rate of 26%/11%/18%, and the corresponding PE of 50/45/38 times, respectively.

Su Ling's volume+equity incentives guarantee the company's rapid growth in performance. The prospects for innovative KC1036 drugs are promising, maintaining the “buy-B” proposal.

Risk warning: KC1036 R&D failed or progress fell short of expectations; Su Ling's sales fell short of expectations.