Key points of investment:

High base performance in the first half of the year is under pressure, and long-term healthy development is expected in the context of regulation

24 Semi-Annual Report Announcement: The company's H1 revenue is 2.26 billion (-11.49%), net profit due to mother is 0.265 billion (-3.73%), net profit not attributable to mother is 0.221 billion (-15.95%); single Q2 revenue is 0.901 billion (-24.98%), net profit due to mother 0.117 billion (-12.59%), net profit not attributable to mother is 0.081 billion (-34.22%).

By type: revenue from single Q2 injections 0.302 billion (-47%); revenue from oral liquid 0.175 billion (+25%), mainly due to increased sales of Jinzhen oral liquid; revenue of capsules 0.205 billion (-19%); revenue of granules and infusions; revenue of 0.058 billion (-15%); tablet revenue 0.087 billion (-11%); patch revenue 0.053 billion (-9%); gel revenue 0.013 billion (+62%), mainly due to increased sales of musculoskeletal pain relief gels.

Innovative varieties of dual-wheel drive traditional Chinese medicine continue to be rich, with sufficient release potential in 2024 H1. The company continues to promote the development of new products. Traditional Chinese medicine submitted 3 NDA varieties (Longqi capsules, Sanpu Penan granules, and Yu Nu frying granules), completed 2 phase III clinical research varieties (Pisces granules, Suxintongji granules), and obtained 2 clinical trial approval notices (Qiang Qin granules, Qiwei fatty liver granules); Innovative chemical drugs completed 1 phase II clinical case enrollment (DC20) and obtained 2 clinical trial approval notices (AAPB for injections (10mg, 25mg)); Chemical generic drugs obtained 3 drug registration certificates (pirampanide tablets (2 mg, 4 mg), posaconazole enteric tablets); developed 1 phase I clinical type of biopharmaceutical (KYS202002A injection multiple myeloma and systemic lupus erythematosus indications); promoted a number of projects to carry out separate pharmacogenicity research, pre-clinical research, and clinical trial research work.

Equity incentives guide annual goals and reflect the company's confidence in development.

In April 2022, Kangyuan Pharmaceutical announced an equity incentive plan “Jiangsu Kangyuan Pharmaceutical Co., Ltd. 2022 Restricted Stock Incentive Plan”. The company has established strict performance assessment conditions, made clear requirements for the company's revenue and net profit, and made non-injectable revenue growth one of the performance assessment goals, indicating the company's determination to optimize its product structure and develop non-injectable products. The company's equity incentive target for 2024 is: based on revenue in 2023, with a revenue growth rate of not less than 18% in 2024, or a net profit growth rate of not less than 20% in 2024 based on 2023 net profit; based on revenue from non-injectable products in 2023, the revenue growth rate for non-injectable products in 2024 is not less than 22%.

Profit forecasting and investment advice

We forecast the company's revenue for 24/25/26 to be 5.746/6.576/7.636 billion yuan, respectively, with a growth rate of 18%/14%/16%. The company's net profit for 24/25/26 was 0.663/0.793/0.957 billion yuan, respectively, with a growth rate of 23%/20%/21%. We are optimistic about Kangyuan Pharmaceutical's ability to innovate and gradually optimized marketing system, and maintain a “buy” rating.

Risk warning

Risk of product sales and promotion falling short of expectations; risk of R&D failure or progress falling short of expectations; risk of increased risk of industry competition; risk of price reduction of key product collections exceeding expectations.