Key points of investment:

Incident: The company released its 2024 mid-year report. 2024H1 achieved revenue of 2.76 billion yuan (+15.1%), net profit of 0.63 billion yuan (+15.5%), deducted non-net profit of 0.63 billion yuan (+16.3%), achieved revenue of 1.41 billion yuan (+15.1%) in a single quarter of 2024Q2, net profit of 0.36 billion yuan (+14.6%), net profit to mother of 0.37 billion yuan (+16.0%) ).

The core business anesthesiology sector led to high overall performance growth: by business segment, the company's anesthesia business achieved revenue of 1.52 billion yuan (+20.0%) in the first half of '24, accounting for 55.1% of revenue and 0.595 billion yuan (+8.2%) of revenue, accounting for 21.6%, neurological 0.08 billion yuan (+8.5%), pharmaceutical business 0.36 billion yuan (+23.6%), raw materials 0.096 billion yuan (+26.6%). The high growth in the company's anesthetic business is mainly due to the continuous release of the core products oxycodone, remifentanil, sufentanil and oxeridine fumarate injections and alfentanyl, which have been approved in recent years. Since these varieties are still in the release period, we believe that maintaining high growth will drive steady growth in the company's overall performance in the future. The company's gross margin and net margin for the first half of 2024 were 72.5% and 22.7%, respectively, and remained at a high level. In terms of the cost ratio, the sales expense ratio, and the financial expense ratio were 30.0%, 4.2%, and -0.3%, respectively. Among them, the sales expense ratio decreased by 2.6 pct year on year.

The issuance of equity incentives establishes confidence in long-term performance growth: In June 2024, the company announced equity incentive targets, which provide clear guidelines for the company's performance growth in 24-26: based on 2023 net profit, the net profit growth rates for 2024-2026 will not be less than 15%, 33%, and 56%, respectively, with a three-year compound growth rate of 15% +. Issuing equity incentives is conducive to stimulating the motivation of the company's employees to work and further improving the company's profitability, growth ability, and ability to control expenses. In addition, the company has also set strict individual performance evaluation indicators to ensure a comprehensive assessment of incentive targets.

R&D investment continues to increase, and innovative products provide a long-term growth engine: in the first half of 2024, the company invested 0.32 billion yuan in R&D, an increase of 13.0% over the previous year. The company adopts a product development model combining simulation and putting equal emphasis on “self-development+extension”. Currently, the company has more than 70 research projects, including more than 20 innovative drug projects. In the innovative drug project, the NH60001 emulsion injection is in clinical phase III, and the phase II project includes NHL35700 tablets and YH1910-Z02 injections. In terms of external cooperation, the NHL35700 introduced by the company is in clinical phase II, and the Protollin nasal spray is in clinical phase I. The company's rich product layout lays the potential for future performance growth.

Profit forecasting and investment advice

Referring to the equity incentive plan and interim performance, we expect the company's 2024-2026 revenue to be 5.98/7.2/8.69 billion yuan (previous value 6.08/7.32/8.83 billion yuan), respectively, with growth rates of 19%/20%/21%, respectively, and net profit to mother of 1.22/1.47/1.77 billion yuan (previous value 1.24/1.5/1.82 billion yuan), respectively. The growth rates are 18%/20%/21%, and EPS respectively 1.21 yuan, 1.46 yuan, and 1.76 yuan. We believe that the company is currently in a relatively undervalued position. Considering the company's growth and the company's rich product pipeline, it maintains a “buy” rating.

Risk warning

Risk of product sales falling short of expectations, risk of industry policies falling short of expectations, drug R&D innovation, generic drug development and consistency evaluation