Key points of investment:

Event: Company releases 2024 semi-annual report

The first half of 2024 achieved revenue of 0.199 billion yuan, a year-on-year increase of 14.4%, achieved net profit of 0.022 billion yuan, an increase of 8.1% over the previous year, and realized net profit without deduction of 0.019 billion yuan, an increase of 106.6% over the previous year;

Q2 2024 achieved revenue of 0.095 billion yuan, up 2.8% year on year, realized net profit of 5.315 million yuan, a year-on-year decrease of 13.1%, and realized net profit without deduction of 3.836 million yuan, an increase of 28.7% year on year.

In the first half of 2024, the volume of the pharmaceutical+API business increased significantly. R&D investment increased in the first half of the year, and the company achieved a 14.4% increase in revenue. Among them, after winning the bid for injectable somatostatin and injectable atropine in June 2023, formulation sales increased 48.3% over the same period last year, and overseas sales of APIs increased 97.5% over the same period last year.

In the first half of '24, the company invested a total of 24.39 million yuan in R&D, with a year-on-year increase of 56.4%, mainly due to: 1) the company invested 12.5 million yuan to cooperate with Zhejiang Dingchang Pharmaceutical Technology Co., Ltd. to develop an injectable octreotide acetate microsphere project. The initial investment of 5 million yuan was all included in R&D expenses; 2) Simeglutide and salmon calcitonin entered the pilot phase; 3) due to an increase in costed R&D investment in the KJMRT-YF001 (cyclic peptide-113) self-development project.

The continuous expansion of API production capacity is expected to accelerate the company's performance in the first half of 2024. The company's fund-raising project “Engineering Technology Center Upgrade Project” was successfully completed, effectively ensuring the smooth development of the company's R&D work in the next 3-5 years. The main construction of the “Polypeptide API Production Line Project with an Annual Output of 395 kg”, the “Formulation Industrialization Technology Transformation Project” and the “Polypeptide Innovative Drug CDMO, API Industrialization Project” has been completed and has entered the equipment commissioning stage. In the future, as production capacity is gradually implemented, it is expected to drive continued growth in performance.

Profit forecasting and investment advice

We expect the company's net profit to be 0.1/0.14/0.17 billion yuan in 2024-2026, up 42%/39%/21% year-on-year, corresponding PE 26/18/15 times, respectively. We believe that with the implementation of new production capacity, the company's growth will be prominent and maintain a “buy” rating.

Risk warning

Risk of production capacity expansion falling short of expectations, falling downstream orders for APIs and CDMO businesses falling short of expectations, and falling formulation prices and gross margins exceeding expectations