occurrences

With 2024H1, the company achieved revenue of 2.26 billion yuan, -11.49%; net profit to mother of 0.265 billion yuan -3.73% year over year; net profit after deducting non-attributable net profit of 0.221 billion yuan, -15.95% YoY. With 2024Q2, the company achieved revenue of 0.901 billion yuan, -24.98%; net profit to mother of 0.117 billion yuan -12.59% year-on-year; net profit after deducting non-attributable net profit of 0.081 billion yuan, or -34.22% year-on-year.

Short-term business pressure, compliance marketing continues to advance

By product, 2024H1 achieved revenue of 0.84 billion yuan (yoy -27.49%); oral liquid achieved revenue of 0.544 billion yuan (yoy +28.60%), mainly due to year-on-year increase in sales of Jin Zhen oral liquid; capsules achieved revenue of 0.402 billion yuan (yoy -12.80%); tablets achieved revenue of 0.169 billion yuan (yoy -5.16%); granules and infusions achieved revenue of 0.162 billion yuan (yoy -5.16%) ( YOY -15.13%); Patches achieved revenue of 0.104 billion yuan (yoy -10.94%); gels achieved revenue of 0.021 billion yuan (yoy +107.87%), mainly due to year-on-year increase in musculoskeletal pain gel sales. 2024H1, the company's overall experience is under pressure in the short term. The main reason is that the company faced multiple complex internal and external environments and challenges in the process of promoting and upgrading comprehensive compliance, which had a certain impact on the growth rate of short-term business performance. However, looking to the future, building a comprehensive compliance system will help achieve long-term healthy development of various businesses.

Profitability is steady, and R&D projects are progressing steadily

2024H1, the company's profitability is stable, with gross sales margin of 74.55%, -0.4 pct; net sales margin was 12.01%, +0.93pct year on year; sales expense ratio was 37.8%, -4.8pct year on year; management expense ratio was 9.3%, +5.0 pct year on year; R&D expense ratio was 15.01%, year on year +0.77pct. The company continues to promote research and development of new products. 2024H1, traditional Chinese medicine submitted 3 drug marketing registration applications (NDA) (Longqi capsules, Sanpupenan granules, yunjuan granules), completed 2 phase III clinical research varieties (Pisces granules, Suxintongji granules), and obtained 2 clinical trial approval notices (Qiangqin granules, Shichimi fatty liver granules).

Profit forecasting and valuation

2024H1, the company continues to promote compliance, and short-term performance is under pressure. We lowered our 2024-2026 revenue forecast from 5.773/6.632/7.588 billion yuan to 4.866/5.423/6.048 billion yuan; net profit forecast to mother was lowered from 0.65/0.765/0.902 billion yuan to 0.552/0.637/0.726 billion yuan. Maintain a “buy” rating.

Risk warning: risk of product sales falling short of expectations, risk of policy fluctuations, risk of sales reform falling short of expectations