Incident: The company released its 2024 quarterly report, achieving operating income of 3.18 billion yuan, a year-on-year increase of 14.4%; realized net profit attributable to shareholders of the parent company of 860 million yuan, an increase of 0.2% over the previous year; and realized net profit of 850 million yuan after deduction, a year-on-year decrease of 0.86%.

Growth hormone is growing steadily. Jinsai Pharmaceutical achieved revenue of 2.47 billion yuan (+5%) and net profit of 860 million yuan (-3%). The growth hormone sector grew steadily, and the share of long-term growth hormone continued to increase. Jinsai's pediatric business is growing steadily. Growth hormone-related dosage forms respond positively to local procurement, and the share of revenue for long-acting dosage forms continues to rise. The new business strategy is more clear and focused. Revenue from products related to non-core pediatric businesses such as comprehensive pediatric medicine, women's health, adult endocrinology, and dermatology accounts for nearly 10% of Jinsai Pharmaceutical's overall revenue.

Ongoing doses of the shingles vaccine. Baike Biotech achieved revenue of 270 million yuan (+50.6%) and net profit to mother of 61 million yuan (+239%). The revenue side increased the amount of the herpes zoster vaccine rapidly over the same period last year. According to the company's latest investor relations activity record, the shingles vaccine has been approved in 30 provinces, autonomous regions, and municipalities across the country. By the end of 2023, the company's shingles vaccine had effectively covered nearly one-third of the country's vaccination sites, and is expected to continue to increase in 2024. In terms of profitability, the company's gross margin for Q1 in 2024 was 89.7% (+3.84pp), mainly due to the high gross margin of the herpes zoster vaccine and an increase in sales share. The sales expense ratio is 36.98% (-2.73pp), the management expense ratio is 13.04% (-4.74pp), and the R&D expense ratio is 17.37% (-1.25pp). The net interest rate was 22.41% (+12.17pp), mainly due to the company's release of new products, and the scale effect was evident.

The proprietary Chinese medicine business has remained stable, and the real estate sector is growing rapidly. Huakang Pharmaceutical achieved revenue of 191 million yuan (+15.8%), net profit of 11 million yuan (+22.2%); the subsidiary Gaoxin Real Estate achieved revenue of 236 million yuan (+232%) and net profit to mother of 06 million yuan (+500%). The operation has remained generally stable. On January 13, the company announced the “Shareholder Return Plan for the Next Three Years (2023-2025)”. Under the conditions of cash dividends, the profit distributed by the company in cash every year is not less than 40% of the distributable profit achieved in that year.

Also, it was announced on January 20 that the total capital the company plans to use for repurchase is not less than RMB 100 million (inclusive) and no more than RMB 120 million. Based on the total capital to be used for the repurchase and the maximum repurchase price, the estimated number of shares to be repurchased is about 625,000 shares, accounting for about 0.15% of the company's total share capital. We believe that the above measures are conducive to positive returns to investors, guide investors to establish the concept of long-term investment and rational investment, and establish a continuous, stable and scientific return mechanism for investors.

Profit forecasting and investment advice. EPS is expected to be 12.59 yuan, 13.85 yuan, and 15.06 yuan respectively in 2024-2026. Maintain a “buy” rating.

Risk warning: There is a risk that product sales will decline, and the R&D progress will fall short of expectations.