Incident: In the first half of 2024, the company achieved revenue of 2.26 billion yuan (-11.49%, down 11.49% year on year, same below), net profit of 0.265 billion yuan (-3.73%) to mother, net profit of 0.221 billion yuan (-15.95%) after deducting net profit from non-mother. Looking at Q2 alone, the company achieved revenue of 0.901 billion yuan (-24.98%), net profit to mother of 0.117 billion yuan (-12.59%), and net profit of non-return to mother of 0.081 billion yuan (-34.22%), putting pressure on performance.

Sales performance of oral liquids and gels was good, and the three rates showed structural changes: by product, 2024H1, revenue 0.84 billion yuan (-27.49%) for injections, 0.544 billion yuan (+28.60%) for oral liquid, 0.402 billion yuan (-12.80%) for capsules, 0.169 billion yuan (-5.16%) for tablets, 0.162 billion yuan (-15.13%) for granules and injections, 0.104 billion yuan (-15.13%) for patches billion yuan (-10.94%), gel revenue 0.021 billion yuan (+107.87%). Sales performance of oral liquid and gel agents was good, mainly due to the year-on-year increase in sales of Jin Zhen's oral liquid and musculoskeletal pain relief gel. The company's gross margin remained basically stable. 2024H1, the company's gross sales margin was 74.55% (-0.4pct, down 0.4 percentage points from the same period last year, same below), net sales margin of 12.01% (+0.93pct), and net sales margin of 9.77% (-0.51 pct) after deduction. The sales expense ratio and financial expense ratio have declined. Among them, the 2024H1 company's sales expense ratio was 37.8% (-4.8pct); the management expense ratio increased by 5.0 pct to 9.3% over the previous year.

Research and development continues to advance, and academic promotion leads new growth. In the first half of 2024, the company continued to promote research and development of new products. Traditional Chinese medicine submitted 3 drug marketing registration applications (NDA) varieties (Longqi capsules, ginpu penan granules, yunu frying granules), completed 2 phase III clinical research varieties (Pisces granules, Suxintongji granules), and obtained 2 clinical trial approval notices (Qiangqin granules, seven-flavor fatty liver granules). The product reserves rank among the highest in the industry. Among the existing varieties, 2024H1, the company has 7 new varieties included in the 9 guidelines, which shows strong product strength. On the sales team side, the company rapidly improves the professional quality of marketers through academic empowerment work. According to the characteristics of many exclusive varieties, the in-hospital market is divided and managed hierarchically, and the internal sales line division is basically completed.

Profit forecast and investment rating: The company's performance in the first half of the year was under pressure from a high base. We lowered the company's net profit forecast for 2024-2026 from 0.65/0.78/0.94 billion yuan to 0.57/0.66/0.75 billion yuan. The current market value corresponds to PE 15/13/11 times. Maintaining a “buy” rating considering the company's strong R&D capabilities and sales flexibility after academic transformation.

Risk warning: Risk of major changes in industry policies, risk of product sales and promotion falling short of expectations, etc.