Event: The company released the 2024 semi-annual results forecast. Net profit of 2024H1 is estimated at 180~250 million yuan (+330% ~ 497%, same below), net profit after deducting net profit of 180~250 million yuan (+319% ~ 481%); after estimation of 2024Q2, net profit to mother is estimated at 1.14 to 184 million yuan (+443% ~ 776%), net profit from non-return to mother of 1.15 to 185 million yuan (+475% ~ 825%, +77% ~ 185% month-on-month).

Peptide APIs continued to gain strength, and the profit side far exceeded expectations. The company's 2024H1 net profit after deduction has exceeded 168 million yuan in 2023, and this performance has greatly exceeded market expectations. According to the announcement, the increase in performance was due to independent selection of products. Considering the current period when influenza is not high and oseltamivir is in peak season, we believe that the main contribution to profit comes from peptide APIs, especially GLP-1 APIs. Using linear extrapolation based on the interim report results, we forecast net profit deducted from non-return to mother in 2024 to reach 360 million yuan to 500 million yuan (+114% to 198% year over year).

The GLP-1 series peptides are in short supply, and the market continues to be booming. The GLP-1 market continues to grow, with GLP-1 drug sales reaching $225 billion in 2022, rapidly growing to $37 billion in 2023 (+64% year over year), and is expected to reach a new high in 2024. According to J.P. Morgan's forecast, the GLP-1 market will reach $71 billion in 2032. The huge market potential spurred an influx of latecomers. Leading manufacturers such as Novo Nordisk and Eli Lilly are also actively investing in expanding production to ease pressure on production capacity.

Vigorously promote workshop construction and continue to release production capacity in the peptide business. The company's Lianyungang factory already has 2 production workshops for polypeptide APIs, of which the third-generation workshop (106 workshop) has been put into operation. The single batch output of many long-chain modified peptide APIs, such as simeglutide, has exceeded 10 kg, and the total production capacity of peptide APIs has reached the tonne level.

BD ability determines the upper limit of development. The chairman heads the BD team and empowers the company's development. In recent years, the company has continued to strengthen the BD team, actively recruit outstanding talents from home and abroad, increase market share through a matrix layout, fully cover the Chinese, European, American and Asia-Pacific markets, and continue to develop important customers in Brazil, Greece, Italy and other places.

With polypeptide APIs as the core, the forward-looking layout has gained a first-mover advantage. As of 2023, the company has completed the domestic registration of 16 active drug types and the US FDA registration of 12 active drug types. The pipeline covers major peptides such as Simei, Lira, Tilpotide, Lanreotide, and Thymus Pharmacin. In 2023, APIs such as Simei and Lila successively obtained FA letters from the FDA. When China's Simei patent expires in 2026, generic drug customers will shift from the R&D and application stage to the commercialization stage, and market demand will usher in the first major growth point, and companies with a first-mover advantage are worth focusing on. Taking advantage of the GLP-1 market growth, the company's performance is expected to continue to rise, and we will continue to focus on it.

Profit forecast: We are optimistic that the company's customers will continue to expand, and the volume of independent products will accelerate as downstream customer products are gradually launched. Combined with the performance forecast and the increase in profit forecasts, net profit due to mother for 2024-2026 was 374 million yuan, 539 million yuan, and 827 million yuan, respectively, compared with 130%, 44%, and 54%, respectively. The corresponding PE was 35X, 24X, and 16X, respectively, maintaining the “buy” rating.

Risk warning: Sales fall short of expectations, product development progress falls short of expectations, and industry competition intensifies.