Company events: On July 31, Hewang Pharmaceutical announced its 2024 interim results. Product sales revenue continued to grow, 24H1 achieved profits, sufficient cash balances, global sales of the core product furoquintinib exceeded expectations, and other pipelines were further broadened and real progress was achieved. The following are the highlights of the company's interim report:

1) 24H1's total revenue is $0.3057 billion and net profit is $25.8 million.

2) 24H1's oncology immunization business revenue of $0.1687 billion, including $0.1278 billion from sales of oncology products, $0.0338 billion for Takeda's down payment/milestones/R&D services, and $0.0071 billion from other R&D services (mainly from Eli Lilly and AstraZeneca).

The 2024 full-year guideline is $0.3-0.4 billion.

3) 24H1 product sales (at a fixed exchange rate): furoquintinib sales of 61 million dollars (YOY +13%); furoquintinib sales of 0.13 billion dollars; sevotinib sales of 25.9 million dollars (YOY +22%); surufatinib sales of 25.4 million dollars (YOY +17%); sales of tazestar 0.5 million dollars (YOY +46%). Total sales of oncology products were $0.2433 billion (YOY +145%), and the company's consolidated revenue after division was $0.1278 billion (YOY +64%).

4) 24H1 expenses decreased: R&D expenses of USD 95.3 million (YOY -34%), sales and administrative expenses of USD 57.8 million (YOY -15%).

5) 24H1 cash balance is $0.8025 billion.

Interim report performance view: ① The company's 24H1 performance is in line with expectations. The oncology immunization business revenue is 0.1687 billion US dollars, and the full year guidance is 0.3-0.4 billion US dollars, which is in line with expectations. ② After 24H1 split, the comprehensive sales revenue of oncology products was 0.1278 billion US dollars (YOY +64%), leading to a 30% to 50% increase for the whole year of 24. ③ The core product fruquintinib in the US 24H1 sold $0.13 billion. Partner Takeda's guidance was to increase by > 100% in the new fiscal year, so overseas 24H1 sales exceeded expectations. ④ Revenue growth from other products is largely in line with expectations. ⑤ The company has sufficient cash on its account and is expected to be profitable in 2025.

The company's future catalytic events will be intense, and the innovation pipeline will usher in a harvest period. 1) Overseas sales of fruquintinib are expected to continue to grow. Japan submitted a marketing application in September 23 and is expected to be approved in the second half of '24. 2) Fruquintinib's domestic 2L gastric cancer indications were accepted by the NMPA in April 23, and it is expected that H2 will be approved in '24, bringing a new impetus for sales growth. 3) Global rights of sevotinib (c-Met inhibitor) are authorized to AstraZeneca. Second-line MET amplifies EGFR-TKI resistant NSCLC indications overseas are expected to be submitted to the FDA by the end of 24, and domestic marketing applications are expected to be submitted by the end of 25. 4) The domestic NDA for second-line ITP (SYK inhibitor) was accepted in January 2024 and is expected to be approved this year; small overseas samples are enrolled in Phase 1 clinical trials and have the potential to go overseas. 5) The first phase II/III registered clinical administration of surufatinib for first-line pancreatic cancer was completed in May 2024.

6) The domestic FL indication NDA for tazepastat was accepted in July '24.

Profit forecasting and valuation. The company guides the comprehensive revenue of the oncology/immunization business in 2024 to USD 0.3-0.4 billion (due to a target increase of 30%-50% in sales of marketed oncology products and royalties). We expect total company revenue of $0.654, 0.871, 1.121 billion in 2024-2026. Using DCF calculations, assuming a sustainable growth rate of 2%, WACC of 8.94%, the reasonable equity value of the company is HK$41.2 billion (exchange rate = HK$7.81). The company has a rich pipeline of innovative products, and globalization is progressing smoothly, maintaining the company's “buy” rating.

Risk warning: risk of clinical development failure, risk of deteriorating competitive landscape, risk of sales falling short of expectations, industry policy risk, etc.