Event: The company released its 2023 three-quarter report. The first three quarters achieved operating income of 672 million yuan, an increase of 16.22% over the previous year, net profit of 225 million yuan, an increase of 27.25% over the previous year, and net profit of 212 million yuan after deducting non-net profit of 212 million yuan, an increase of 28.62% over the previous year.

Performance is in line with expectations, and new high-margin varieties continue to drive growth. The company's revenue and profit continued to grow rapidly in the first three quarters under the overall pressure of the industry. We expect it to be mainly driven by the rapid growth of new varieties of specialty APIs; the profit side grew faster than the revenue side, mainly due to the increase in gross margin due to changes in product structure. On a quarterly basis, 2023Q3 had operating income of 203 million yuan (+3.3% year-on-year, same below), net profit of 65.14 million yuan (+20.5%), net profit of 59.21 million yuan (+23.6%), net profit margin of 56.92% (+7.15pp). Looking ahead to the whole year, driven by the gradual release of new production capacity and continued strong growth in new high-margin varieties, the company's performance is expected to maintain a rapid growth trend.

Expense ratio: increase in gross margin, increase in cost ratio, and continue to increase R&D investment. Gross profit margin: The gross profit margin for the first three quarters was 57.67% (+7.02pp), and the 23Q3 gross profit margin was 56.92% (+7.15pp). Expense ratio: In the first three quarters, the sales expense ratio was 1.56% (-0.44pp), the management fee rate was 11.64% (-1.19pp), the financial expense ratio was -4.74% (+2.82pp), the total cost rate for the three categories was 8.46% (+1.19pp), and the expense ratio increased slightly. 23Q3 sales expense ratio is 1.10% (-2.73pp), management fee rate is 9.17% (-8.46pp), financial expense ratio is -0.83% (+10.20pp), and the total cost rate for the three categories is 9.44% (-0.99pp). R&D investment: R&D expenses in the first three quarters were 73.69 million yuan (+40.10%), accounting for 10.97% of revenue (+1.87 pp); 23Q3 R&D expenses were 25.78 million yuan (+8.20%), accounting for 12.70% of revenue (+0.58pp), and the company maintained a high level of R&D investment.

Profit forecast and investment advice: According to the three-quarter report, taking into account factors such as the company's production capacity, product pace and short-term pressure on the industry, we adjusted the profit forecast. The company's 23-25 revenue is estimated at 9.25, 12.05, and 1,622 million yuan (10.08, 13.34, 1,832 billion yuan before adjustment), up 21.0%, 30.2% and 34.6% year on year; net profit is 3.07, 400 million, 562 million yuan (before adjustment), up 30.3%, 30.4%, and 40.4%

The current stock price corresponding to 23-25 PE is 27/21/15 times. Considering that the company is driven by R&D and profits continue to grow rapidly, generic drug and innovative drug businesses create new growth points in the medium to long term and maintain a “buy” rating.

Risk warning events: risk of product development and technological innovation; risk of changes in the international trade environment; risk of environmental protection and production safety risks; risk of exchange rate fluctuations; risk of delays in disclosure of information or untimely updates.