The company released its 2024 semi-annual report. 2024H1 achieved operating income of 2.26 billion yuan, a year-on-year decrease of 11.49%; net profit to mother of 0.265 billion yuan, a year-on-year decrease of 3.73%; net profit after deducting non-attributable net profit of 0.221 billion yuan, a year-on-year decrease of 15.95%. Among them, 2024Q2 achieved operating income of 0.901 billion yuan, down 24.98% year on year and 33.72% month on month; net profit to mother was 0.117 billion yuan, down 12.59% year on year, down 20.71% month on month; net profit without return to mother was 0.081 billion yuan, down 34.22% year on year and 41.96% month on month.

By business, some varieties are under pressure, and Jin Zhen Oral Liquid performed well. By product, 2024H1 achieved revenue of 0.84 billion yuan, a year-on-year decrease of 27.49% from the previous year; Jin Zhen oral liquid was included in many recommended guidelines for respiratory diseases in children, and 2024H1 still achieved good growth, driving oral liquid products to achieve revenue of 0.544 billion yuan, an increase of 28.60%; capsule products achieved revenue of 0.402 billion yuan, a year-on-year decrease of 12.80%; while gel products achieved revenue of 0.402 billion yuan, a year-on-year decrease of 12.80%; while gel products achieved revenue 0.021 billion yuan, a year-on-year increase of 107.87%. The core product musculoskeletal pain relief gel showed outstanding performance.

R&D and innovation capabilities have been further reflected, and product advantages have been enhanced. In the first half of 2024, the company's R&D expenses were 0.339 billion yuan, and the R&D expenditure rate was 15.01%, an increase of 0.77pct over the previous year. The R&D investment intensity continues to be at the forefront of the industry. 2024H1 submitted an NDA listing application for three varieties: Longqi Capsule, Shenpu Penan Granule, and Yu Nu Pan Granule, completed a phase III clinical study on 2 varieties: Shuangyu Granules and Suxintongji Granules, and obtained IND approval for 2 products: Qiangqin Granules and Shichimi Fatty Liver Granules. At the same time, clinical trials of innovative chemical drugs and biopharmaceuticals are progressing steadily, and the company's products are further enriched.

The sales side implements the “Dr. Pan” project and lays out OTC. The company took the lead in initiating sales compliance work. Although it had a certain impact on short-term performance, it was more conducive to long-term development. The company takes professional marketing and compliance marketing as the core, fully implements the “Dr. Pan” project, and promotes marketing through academics. At the same time, the company focuses on OTC and distribution business. Among them, OTC focuses on cooperation with the top ten chains to enhance the company's brand image and brand influence in the OTC proprietary Chinese medicine field; while the distribution business can enhance the company's customer coverage in small and medium-sized chains, single pharmacies, and clinic health rooms, and enhance product coverage.

Maintain a “Highly Recommended” investment rating. We believe that the company's short-term performance is affected by its own compliance and industry policies. At the same time, we see that the products being developed by the company are gradually entering a harvest period, and sales are gradually improving. Based on the hospital environment and the company's own adjustment factors, we lowered our forecast net profit for 2024-2026 to 0.54/0.65/0.76 billion yuan, an increase of 0.7%/19.6%/17.1% year-on-year, corresponding PE of 15/13/11 times, maintaining a “highly recommended” investment rating.

Risk warning: policy changes, R&D failure, increased market competition, risk of fluctuations in raw material prices, etc.