Incident: The company recently released its 2023 three-quarter report. In the first three quarters, it achieved operating income of 244 million yuan (-23.89%) and net profit to mother of 100 million yuan (-39.18%). The performance was in line with expectations.

The pressure on the main business is expected to clear up: major customers are not recovering as fast as expected+excessive overseas base period LNP revenue. The company's revenue scale is mainly determined by the scale of production of commercial products and R&D samples by pharmaceutical companies. In the commercialization part, the recovery of the procurement scale of raw materials by pharmaceutical companies lags behind the resumption of drug terminal sales after the liberalization of epidemic control; in the R&D sector, the previous cooling of innovative drug financing and epidemic disturbances caused some domestic drug development companies to slow down or cut their pipeline progress, causing the “funnel effect” in this part of the country to weaken. Furthermore, in 2022, overseas customers generated a one-time revenue of LNP (PEG lipid is the main component) for the development of mRNA COVID-19 vaccines. We expect that the above factors suppressing the growth of the main business are expected to gradually clear up.

The company is entering a new stage of development, based on the following three major inflection points:

1) The results of a phase II clinical study of the first self-developed product, PEG irinotecan, on small cell lung cancer above line 2 were recently read, and the efficacy and safety data exceeded expectations. The company recently announced the phase II clinical results of PEG-modified irinotecan JK-1201I for second-line small cell lung cancer (SCLC). The efficacy and safety data far surpass the approved and ongoing therapies:

MOS=12.1m. According to the November 3 Investor Relations Activity Record Form, JK-1201I is expected to expand to the first tier in the future with excellent data support. According to the “Chinese Medical Association Clinical Diagnosis and Treatment Guidelines for Lung Cancer (2023 Edition)”, irinotecan is a classic treatment with the same status as other treatments (Class 2A recommendation evidence) for broad-stage SCLC. For first-line treatment of broad-stage SCLC, when patients have a PS score of 3 to 4 (caused by SCLC), the IP plan (irinotecon+cisplatin) and IC plan (irinotecon+carboplatin) all have class 1 recommended evidence. We believe that JK-1201I can be quickly promoted after approval with high clinical awareness, and it's OK Promote the implementation of relevant licensing cooperation and highlight the value of the company's innovative platform based on PEG retouching technology.

Furthermore, since the first case of JK-1201I combined with temozolomide was enrolled in the study on first-line treatment of glioma in November '22, 11-12 people had been enrolled as of the beginning of November 23. Preliminary analysis results are expected to be observed when 20 or more people were enrolled (according to the November 3 Investor Relations Activity Record Form), and there are plenty of catalysts related to the company's innovation platform in the medium term.

2) Medical and aesthetic projects are progressing in an orderly manner and are expected to usher in important cooperation. Clinical research on filling sodium hyaluronate gel using PEG crosslinking technology is expected to end in November 23, and the long-term water light needle project based on similar technology was officially launched in October. Medical and aesthetic products based on PEG crosslinking technology (which have better biocompatibility, enzymatic resistance, and water retention properties compared to traditional crosslinked products) are scarce worldwide and have a strong product base. If the company can cooperate with companies experienced in the medical and aesthetic field, it is expected that the company can combine the resources of both parties to make it a medical and aesthetic explosion.

3) Open a new chapter in overseas business with the approval of myasthenia gravis drugs as a milestone. According to the company's investor relations activity record table 0929, “The indication of the project under NDA is myasthenia gravis, and customers expect sales to reach 1 billion US dollars”, we have tracked that related projects were approved and listed in many overseas places in H2 in '23. The company has now ushered in a milestone in overseas business: this not only means that the project will generate significant revenue growth, but also the company's ability to supply products for important projects of well-known domestic pharmaceutical companies. What is behind this is the company's excellent product performance and quality, and stable and sufficient production capacity. It is expected to attract more famous overseas companies to cooperate with them in new drug research and production projects in the future. Such companies have strong financial strength, no pressure such as collection, etc., and the selection of raw material suppliers focuses more on quality rather than price, which is expected to enable the company to take full advantage of technology (uniform molecular weight, stable process expansion, etc.).

Maintain a “buy” rating. In the long run, the company is a leading enterprise in the global PEG derivatives industry. It has mastered the core technology of the entire derivatives production chain. It has obvious advantages in product quality and customer resources, and is expected to share the dividends of PEG modification application market expansion. Net profit for 23-25 is expected to be 1.51/22/281 million yuan, maintaining a “buy” rating.