Incident: The company released a semi-annual performance forecast for 2024. In the first half of 2024, the company expects to achieve net profit of 180 to 250 million yuan, an increase of 330.08-497.34% over the previous year; it is expected to deduct non-net profit of 180 to 250 million yuan, an increase of 318.59-481.38% year on year.

The performance exceeded expectations, and the advantages in the peptide field continued to be realized, and it is expected to continue to maintain a high growth trend. 2024H1 expects to achieve a median net profit of $215 million (+413.71%); it is expected to achieve a median net profit of $215 million (+400.00%). On a quarterly basis, 2024Q2 expects to achieve median net profit of $149 million (+613.40%); and is expected to achieve net profit deducted of 150 million yuan (+662.54%), and net profit to mother continues to perform strongly. We anticipate this is mainly due to:

① Some of the major commercial peptides in the self-selected product business ushered in a harvest period, showing a continuous trend of release; ② Demand in the global peptide industry chain continued to rise, and the company verified approval and commercialized rapid release of some peptide APIs; ③ the company's small-molecule CDMO technology has significant advantages, and customized services are gradually recovering.

Self-selected products, mainly peptides and specialty APIs, continue to grow rapidly, and small-molecule CDMOs are gradually recovering. 1) Independent products: Continued progress in the research pipeline, and approval of new products is expected to bring new momentum for growth. The company announced that it has successfully signed strategic cooperation agreements for major domestic GLP-1 APIs CDMO, European simeglutide injections, and oral simeglutide APIs, etc., and the rapid growth trend is expected to continue in the medium to long term. Furthermore, in October and December 2023, the company received the FDA's First Approval Letter for the active ingredients liraglutide and simeglutide, respectively. The third-generation peptide production workshop at the 106 workshop was successfully put into operation. It is expected to reach tonnage production capacity. The Lianyungang production base plans to build a new peptide production workshop, which is expected to reach several tons of peptide production capacity. We expect that as new production capacity continues to rise, the company's independent product business is expected to continue to maintain a high growth trend. 2) C (D) MO: Large orders signed, which are expected to gradually resume in 2024. With the advantages of two major technology platforms, the company has established long-term cooperative relationships with well-known pharmaceutical companies such as Gilead, Inset, Shoteng, and Mirati. In May 2023, the company signed a 7-year supply contract for cGMP pharmaceutical advanced intermediates with a cumulative contract amount of about US$102 million with large European pharmaceutical customers, consolidating and gradually regaining certainty.

Profit forecast and valuation: Considering the strong demand for the company's independent selection of products, we adjust the profit forecast. We expect the company's revenue for 2024-2026 to be 1,567 billion yuan, 2,253 billion yuan, and 3.211 billion yuan (before adjustments of 1,417 billion yuan, 2.003 billion yuan, and 2,861 billion yuan), respectively, with growth rates of 51.62%, 43.77%, and 42.53% respectively; considering the company's high amortization of expenses such as convertible bonds and equity incentives in 2024, we expect the cost ratio to gradually rise. Net profit attributable to mother was 352 million yuan, 463 million yuan, and 605 million yuan (before adjustment: 221 million yuan, 312 million yuan, 451 million yuan), and growth rates were 116.07%, 31.39%, and 30.85%, respectively. The company has a rich pipeline of independently selected products, and the C (D) MO technology platform has significant advantages. In the future, it is expected to bring long-term growth and maintain a “buy” rating through its own product +C (D) MO two-wheel drive.

Risk warning events: Public data used in research reports may be at risk of information delays or untimely updates; risk of production capacity growth falling short of expectations; risk of loss of core technical personnel; risk of falling gross margin; risk of rising raw material supply and prices; risk of environmental protection and production safety; risk of exchange rate fluctuations.