The company's main business is steady, and revenue from innovative drugs continues to increase. On April 17, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 22.82 billion yuan, an increase of 7.26% over the previous year; realized net profit of 4.141 billion yuan without return to mother, an increase of 21.46% over the previous year, and innovative drugs achieved revenue of 10.637 billion yuan (tax included), an increase of 22.10% over the previous year. In the first quarter of 2024, the company achieved revenue of 5.998 billion yuan, an increase of 9.20% over the previous year; realized net profit withheld from mother of 1,440 billion yuan, an increase of 18.06% over the previous year? Innovative achievements continue to be approved, and the clinical value of innovative drugs is highlighted. In 2023, the company's 3 Class 1 innovative drugs (adbelimab, reguglitin phosphate, orteconazole) and 4 new Class 2 drugs (dexmedetomidine hydrochloride nasal spray, abiraterone acetate nanocrystals, irinotecan hydrochloride liposomes, and hengliflozin metformin sustained-release tablets) were approved for marketing. By the end of the 23 annual report period, the company had been approved to market 15 Class 1 innovative drugs and 4 Class 2 new drugs in China, covering various treatment fields such as anti-tumor, analgesic anesthesia, metabolic diseases, and infectious diseases. In 2023, the three innovative drugs revirumide, darucilide, and hexagliptin were officially implemented in medical insurance prices. The average price reduction reached 65%, meeting the clinical needs of more patients, and the revenue contribution was further expanded.

Generic drugs for analgesia were quickly released, and sales of other generic drugs were under pressure. With the recovery of diagnosis and treatment in medical institutions and the gradual release of demand for prescription drugs, the company's sales of analgesic and anesthetic products and newly launched generic drugs increased significantly year-on-year, but generic drug collection still put a certain amount of pressure on sales. The second batch of collections involved injectable paclitaxel (albumin binding type) and abiraterone acetate tablets due to factors such as not winning bids and price reductions in most provinces. Sales of products involved in the seventh batch of collected products decreased by 911 million yuan year on year. The total sales volume of generic drugs declined slightly from year on year..

Strengthen innovation at the source and create high-quality innovative products. Eleven novel and differentiated ADC molecules have been successfully clinically approved on the company's ADC platform. Among them, SHRA1811, an anti-HER2 ADC product independently developed by the company, first disclosed global multi-center phase I clinical research data for advanced solid tumors at the AACR 2023 conference, showing competitive data. Currently, five indications for SHR-A1811 have been included in the CDE list of breakthrough treatment varieties. The KRAS G12D inhibitor independently developed by the company is made in a liposome package. It is the world's first liposomal KRASG12D inhibitor. It has excellent pharmaceutical properties such as targeted administration and controlled and continuous drug release. Its phase I clinical study was successfully selected as the preferred oral report at the 2023 ESMO Conference. It is the first KRAS G12D inhibitor in the world to disclose clinical efficacy data.

Investment proposal: The company is rapidly advancing clinical trials of innovative drugs, and many innovative achievements have been approved one after another. With its excellent R&D capabilities, we expect the company to achieve revenue of 263.29/313.35/38.247 billion yuan in 2024/2026, an increase of 15.40%/19.00%/22.10%; achieve net profit to mother of 52.67/64.25/8.073 billion yuan, an increase of 22.40%/22.00%/25.60%, corresponding to PE 51/42/33 times, maintaining” Recommended” ratings.

Risk warning: Market competition increases risk; generic drug risk; policy change risk; collection risk; risk of product development falling short of expectations.