Repurchase shares to carry out employee stock ownership plans and improve the long-term incentive mechanism. On January 27, 2024, the company announced that it plans to repurchase shares through centralized bidding transactions, with a repurchase amount not less than RMB 0.1 billion and no more than RMB 0.2 billion. As of June 30, 2024, the company has repurchased a total of 6.127 million shares, accounting for 1.10% of the company's total share capital, with a payment amount of 99.5159 million yuan (excluding transaction fees). On July 16, 2024, the company announced the first phase of the employee stock ownership plan. The stock source is the company's stock repurchase and/or purchase of the company's shares through secondary market purchases, etc., involving a cumulative total of no more than 10% of the company's total share capital. By promoting employee shareholding, the company's long-term incentive mechanism is improved, and employee cohesion and work enthusiasm are enhanced.

Prices of major pharmaceutical ingredients have bottomed out, and profitability has gradually improved. The company's revenue and profit declined in 2023, and gross margin fell by 4.14pcts, mainly affected by falling market prices for some of the company's core products.

Currently, the prices of the company's main types of pharmaceutical raw materials are stable, and the prices of the main types of animal insurance APIs have bottomed out. 2024Q1's net profit to mother increased 61.8% month-on-month, gross margin increased 7.91 pcts month-on-month, and the company's profitability is gradually improving.

The product matrix continues to be rich, and production capacity construction is progressing steadily. By the end of 2023, the company had produced and sold more than 70 APIs and intermediates, including 12 products with revenue exceeding 100 million yuan, 17 products with revenue exceeding 50 million yuan, a layout of more than 30 specialty APIs, and 65 ongoing research projects. The product matrix continues to be rich. In addition, the first phase of the company's fluorophenicol project with an annual output of 4,500 tons and the second phase of the doxycycline project with an annual output of 1,500 tons were successfully put into operation. The infrastructure projects for the key pharmaceutical intermediates project with an annual output of 70,000 tons and the technical improvement project for pharmaceutical raw material intermediates with an annual output of 1,420 tons were successfully built, providing a good foundation for the company's business expansion.

Profit forecast and rating: The company is expected to achieve revenue of 6.182/7.085/8.098 billion yuan in 2024-2026, up 15.6%/14.6%/14.3% year on year; net profit to mother of 0.728/0.895/1.063 billion yuan, up 18.9%/18.8% year on year. Maintaining a “buy” rating based on the gradual improvement of the company's profitability and the continuous enrichment of the API and intermediate product matrix.

Risk warning: risk of product price changes, increased risk of market competition, risk of changes in industry policies, risk of changes in raw material prices