After 23 years of adjustment, profit returned to mother +1.5% to 2.59 billion yuan: the company's revenue for 23 years was +0.7% to 26.2 billion yuan, of which cancer drug revenue accounted for 33.6%, liver disease accounted for 14.6%, breathing accounted for 11.3%, surgery/analgesia accounted for 14.3%, cardiovascular accounted for 10.5%, and others accounted for 15.7%. Among them, revenue from innovative drugs increased 13.3% year-on-year to 9.89 billion yuan, accounting for 37.8%. Generic drug products with the Group's annual revenue of 500 million yuan or more (excluding exclusive products) have all been included in the scope of collection, and collection risks have basically been cleared. The company's gross margin fell 1.8 percentage points to 81.0% year on year. The company's R&D expenditure was 4.7 billion yuan, accounting for 18% of revenue. Of this, 4.4 billion yuan was included in the current profit and loss statement, accounting for an increase of 0.8 percentage points to 16.8%. Sales and administration rates declined by 2.6 and 0.1 percentage points to 35.1% and 7.2%, respectively. In summary, the company's annual profit increased 1.9% year-on-year to 5.10 billion yuan, of which profit to mother decreased 8.3% to 2.33 billion yuan, and adjusted profit to mother +1.5% to 2.59 billion yuan. The company's operating cash flow in '23 was -3% year-on-year to 6.07 billion yuan, and capital reserves reached 21.1 billion yuan, of which net cash was 9.27 billion yuan. The company employs 26,000 people, including 13,000 sales, and the company's total production of bioreactors reached 42,000 liters.

The proportion of innovative products in the product pipeline is increasing year by year: in '23, the company's innovative products include Tianqing Ganmei, flubiprofen gel patch, anlotinib, piamprizumab (PD-1), adalimumab, abergastine α injection (third-generation long-acting rhG-CSF), limaprost tablets, bevacizumab, trastuzumab, rituximab and recombinant human coagulation factor VIIa. The median progression-free survival for first-line small cell lung cancer in Nepal is 6.9 months, median PD-L1 MoS with a total survival time of 19.3 months, is the longest treatment plan for MPFs and MoS in published data, and has been approved; 3-line endometrial cancer/first-line kidney cancer has submitted an NDA), TQ-B3139 (Alk/c-Met, treatment for ALK positive non-small cell lung cancer, which is expected to become the third domestic ALK inhibitor approved for marketing in China), anectinib fumarate capsules (ROS1/Alk/c-Met, the first domestically produced targeted drug approved for ROS1-positive non-small cell lung cancer in non-small cell lung cancer The incidence of ROS1 gene mutations is 1%-2%), liraglutide. Innovative products expected to be marketed in '25 include: TQB3616 (CDK2/4/6, expected to be submitted for second-line breast cancer in '24, first-line breast cancer in '25, and adjuvant breast cancer in '26), D-1553 (KRAS G12C, second-line non-small cell lung cancer accepted, second-line pancreatic duct adenocarcinoma and third-line nodal rectal cancer are included in breakthrough therapeutics. The number of cases of the main KRAS G12C mutant cancer in China is 51,000), pertuzumab (which is expected to become the first domestic product (Similar drugs are on the market). In the future, the company's share of innovative products will increase year by year, and is expected to account for 47% of the company's revenue in '25. The first phase of FS222 (CD137/PD-L1) data from Invox, a subsidiary of the company, is excellent. It is the best data currently seen for PD-1 treated melanoma. It initially shows the platform value of its quadrivalent mAb2 bispecific antibody. Furthermore, its soft mist inhalation platform (the second in the world) has characteristics such as efficient pulmonary drug delivery, uniform distribution, and ease of use, and also has great prospects for further development and BD.

Target price of HK$3.25, purchase rating: In February '24, the company sold 67% of Chia Tai Qingdao's shares for $1.82 billion to further focus on four major treatment areas: oncology, liver disease, respiratory and surgical analgesia. We believe that as the company's innovative drugs and biosimilars are approved for listing, the company's revenue growth rate will increase. Adding to our estimated pipeline value, we used DCF to give the company a valuation (wacc 10%, sustainable growth of 2%), and arrived at a target price of HK$3.25, corresponding to a price-earnings ratio of 21.7 times in 2024. There is room for an increase of 15.6% compared to the current price, and maintain the purchase rating.