The 3Q23 performance was generally in line with expectations: revenue and adjusted net profit were -1.3%/+1.7% YoY respectively to 7.78 billion/1.53 billion yuan, which is basically in line with our expectations (1-3Q23: +1.6%/+0.6% YoY). The 3Q23 proprietary drug business was +1.3% (1-3Q23 +3.9%), slightly exceeding our expectations, showing good resilience in the face of changes in the external industry. Vitamin C raw materials -18.3% (slightly narrowed compared to 1H23 -25.7%), functional food, and other businesses of -22.5% were all affected by falling product prices; antibiotic raw materials continued to record rapid growth of 15.5%, mainly driven by sales growth. The 3Q gross margin fell 1.5pcts to 71.4% (Kaili's sales declined +API prices fell), and the share of R&D expenses in the pharmaceutical business increased by 5.1pcts to 21.5%, but the sales expense ratio dropped sharply by 6.9pcts to 27.4%. Operating profit margin increased by 0.6 pct to 24.3%, with the proprietary drug business operating margin rising 2.6 pcts to 27.6% (1-3Q23: -0.4 pct/+1.0 pct). The 1-3Q23 revenue growth rate for various treatment areas in the proprietary drug business was as follows: neurology +15.2% (steady growth of Enbipp, rapid release of new products such as praxol and palipiperidone), tumors -21.2% (price reduction of Kralidol collection), anti-infection +18.8%, cardiovascular -15.5% (Xuanning Collection did not win the bid). The company expects the dividend rate for the full year of 2023 to reach more than 50%, which is comparable to the 1H23 mid-term dividend rate, and will remain above 30% for a long time.

Management guides the double-digit revenue growth rate in 2024: Among them, new/sub-new products such as Doenda, Anforlik, Jin LiSheng, and Duenyi are expected to contribute more than 3 billion dollars. Next year, they are expected to be approved by 6 NDAs, including PD-1, omazumab, amphotericin B liposome, and Mingfulle's stroke indications, and at least 10 new varieties/new indications are expected to be marketed every year from 2025. Next year, we will focus on the following pipeline data readouts: 1) registered clinical trials: JMT101 (EGFR monoclonal antibody), DP303C (HER2ADC), docetaxel albumin, paclitaxel cationic liposome; 2) early clinical: multiple ADC candidate drugs (Claudin 18.2, Nectin-4, EGFR), simetinib (FGFR/KDR), SYHA1813 (VEGFR/CSF-1R), etc.

Maintaining the buying rating: We fine-tuned the company's profit forecast based on the 3Q23 performance. The 2023-25E net profit forecast is -0.3%/+0.2%/-0.6% compared to the previous one. We maintain our buy rating and target price of HK$10.0. The company is at a critical turning point where the impact of collection is clear, the R&D platform has been repeatedly verified, and many innovative technologies are about to enter an explosion period. The current valuation is very attractive.