Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 40.62 billion yuan, up 7.7% year on year; net profit of 2.84 billion yuan, up 13.6% year on year; net profit after deducted from mother of 2.74 billion yuan, up 13.6% year on year; 24Q1 achieved revenue of 10.41 billion yuan, up 2.9% year on year; net profit of 860 million yuan, up 14.2% year on year.

Pharmaceutical industry: The driving force for innovation has increased significantly, and the product pipeline continues to be rich. In 2023, the core subsidiary China and America Huadong achieved revenue of 12.22 billion yuan (+9.5%); net profit to mother of 2.33 billion yuan (+9.6%); and a return on net assets of 24%. The industrial microbiology sector achieved sales revenue of 530 million yuan (+20.7%) after excluding specific product businesses. The company focuses on the three major fields of endocrinology, immunity and oncology. It implements a “self-development+introduction” strategy, accelerates innovative projects and external mergers and acquisitions, and expands the product pipeline. As of 2023, the company has a pipeline of more than 60 products, 9 of which are in the phase III clinical or marketing application stage. Innovation and transformation are progressing steadily, 1) Oncology field: new ADC drug ELAHERE? The marketing license application in China was accepted in October 23, and is expected to be approved for marketing in 2024; Myvaltinib tablets for advanced non-small cell lung cancer phase III clinical trials with EGFR sensitive mutations have reached the main end, and it is expected that 1L EGFR sensitive mutation NDA will be submitted in 2024; 2) Endocrine field: oral small molecule GLP-1 receptor agonist HDM1002 diabetes indications were approved by China and the US in May 23; China has initiated phase II clinical studies of the GLP-1 GR/IPR target; GLP-1 GR/IPR dual-target Move The agent HDM1005 for overweight or obese type 2 diabetes was approved in the Chinese IND application and completed administration of phase Ia in March '24; the FGF21R/GCGR/GLP-1R three-target agonist DR10624 is undergoing phase IB/IIa clinical trials of obesity with hypertriglyceridemia in New Zealand, which is expected to be completed by the end of 2024. 3) Self-defense field: ARCALYST? The Chinese NDA application for recurrent pericarditis (RP) was accepted in March '24; the NDA application for the usinumab biosimilar drug HDM3001 (QX001S) for the treatment of plaque psoriasis was accepted in August '23.

Medical and aesthetic sector: The medical and aesthetic sector has performed well, and global expansion has achieved remarkable results. In 2023, the company's medical and aesthetic division achieved revenue of 2.45 billion yuan (+27.8%), and the British Sinclair subsidiary's sales revenue reached 150 million pounds (about 1.3 billion yuan, +14.5%), achieving annual profit for the first time; the domestic medical and aesthetic business achieved revenue of 1.05 billion yuan (+67.8%). As of 2023, the company has 38 “non-invasive+minimally invasive” high-end products in the medical and aesthetic field, of which 24 have been launched. As of 2024Q1, significant progress has been made in introducing two botulinum toxin products, ATGC-110 and YY001, in cooperation with Korea's ATGC and Chongqing Yuyan. The ATGC-110 marketing application has been accepted by the Korean Ministry of Food and Drug Safety (MFDS). The indication is to improve moderate to severe interfacial lines in adult patients; YY001 has completed phase III clinical trial enrollment in China. The pace of internationalization of the company's medical and aesthetic sector has accelerated, and product registration and market expansion have achieved remarkable results, laying a solid foundation for the company's long-term growth strategy.

Profit forecasting and investment advice. The 2024-2026 EPS is expected to be 1.87 yuan, 2.14 yuan, and 2.42 yuan, respectively. The corresponding valuations are 18 times, 15 times, and 14 times, respectively, maintaining the “buy” rating.

Risk warning: the risk that the clinical and commercialization progress of developing or introducing innovative products falls short of expectations; the competitive pattern of products increases the risk; the risk that the price reduction in the collection of generic drugs exceeds expectations; the risk of overseas operations and exchange rate fluctuations; the risk of policy risks and medical accidents in the medical and aesthetic industry.