The proprietary pharmaceutical business grew strongly, and 1Q24 revenue/net profit all returned to double-digit growth. Shiyao Group announced that it achieved 1Q24 revenue of 8.98 billion yuan (+11.5% yoy), net profit to mother of 1.61 billion yuan (+12.9% yoy), and net profit of 1.72 billion yuan (+11.6% yoy) after deducting non-return to mother net profit of 1.72 billion yuan (+11.6% yoy). The 1Q24 company performed well, mainly due to strong spiritual/cardiovascular growth in the proprietary drug business, while the tumor line white purple collection affected the gradual launch of revenue entry into new products after digestion. Looking ahead to the whole year, we are optimistic about the steady growth of the company's stock products such as NBP, and the acceleration of volume driven by the entry of new products such as Ming Fu Le/RANKL, the company's revenue/net profit is expected to accelerate to double digit growth during the year. We expect the company's 2024-2026 EPS forecast to be 0.57/0.63/0.73, and give the company 18 times PE in 24 years (the same as its Hong Kong stock comparable company Wind), with a target price of HK$11.15 to maintain a “buy” rating.

The proprietary pharmaceutical business is growing strongly, and the API business is about to reach an inflection point

The proprietary medicine segment 1Q24 achieved revenue of 7.56 billion yuan (+17.7% yoy), thanks to the synergy of neuro/cardiovascular core products, while tumor line white purple affected digestion and returned to double digit growth. 1) Nervous drug 1Q24 revenue +27.4% yoy, thanks to the increase in the length of use of the two dosage forms of Enbipl+impressive results from OTC and retail channel expansion; combined with the continuous dosage after approval of Mingfule's stroke indications in February, I am optimistic that it will grow in collaboration with Enbip after subsequent entry into medical insurance. 2) Cardiovascular 1Q24 revenue +22.3% yoy, mainly due to the continuous expansion of myocardial infarction indications of Ming Fu Le, combined with the continuous expansion of the retail market for old varieties such as Xianning. Due to low VC and caffeine prices in the API sector, 1Q24 revenue fell 12.9% year on year (VC -11.8% yoy, antibiotics -3.6% yoy, functional food -21% yoy). We expect prices such as VC caffeine to gradually stabilize, and there is still room for growth in its market share and operating efficiency as the leading market.

Oncology drug 1Q24 has returned to double digit growth. I am optimistic that the new tumor product will drive the acceleration of the tumor drug 1Q24 to achieve revenue of 1.61 billion yuan (+11.6% yoy). The main reason is that digestion is complete due to the impact of white purple collection, and the new product is being admitted faster. We are optimistic about double-digit revenue growth in this sector in 24 years. Stock products: 1) Although Domesil forms 5 companies that have passed the evaluation criteria, we expect their revenue to remain stable in 24 years; 2) Jinyouli's regional procurement exchanges price for volume, and we are optimistic about the increase in high units of revenue in 24 years. Among the new products: 1) Mitoxantrone liposome/glutamitinib/PI3K is optimistic about benefiting medical insurance negotiations to speed up admission and sales; 2) irinotecan liposome/RANKL/PD-1/Omaru may continue to be released for 24 years by the high-quality sales team of Stone Pharmaceuticals. Furthermore, major products such as meloxicacin crystal/paclitaxel instant solution/docetaxel albumin are expected to be marketed in '25.

GLP-1 plus ADC dual hottrack layout, focusing on innovative varieties to enter the harvest period. The company guides that more than 50 new products/indications will be approved in 24-28 years. It is recommended to focus on: 1) in the ADC platform, a) EGFR ADC (phase I), optimistic about potential BD+ exploration plans; b) Nectin-4 ADCASCO phase I data is ideal, and is optimistic that the ADC platform will add about 2 new INDs every year. 2) In the GLP-1 pipeline, TG103 and Simei analogs are expected to be marketed in '26, and there are still varieties such as dual target/amino/muscle gain/oral administration. 3) mRNA/siRNA pipeline: Preclinical blockbusters still include rabies, RSV, VZV, etc.

Risk warning: risk of price reduction for collection, risk related to R&D/BD progress, risk related to commercialization of new products.