Incident: The company released its 2024 mid-year report. In the first half of 2024, the company achieved operating income of 0.525 billion yuan, an increase of 23.88%; net profit to mother was 0.134 billion yuan, up 12.35% year on year; net profit after deducting non-return to mother was 0.123 billion yuan, up 3.13% year on year

The main business continues to be steady, orders continue to grow, and R&D investment is increasing rapidly. On a quarterly basis, 2024Q2 achieved revenue of 0.309 billion yuan (+17.65%), net profit attributable to mother of 84.39 million yuan (+0.00%), and net profit not attributable to mother of 74.48 million yuan (-12.29%). We expect revenue growth faster than profit mainly due to: ① rapid growth in R&D investment; ② equity sharing business declined compared to the same period last year. In terms of profitability, gross profit margin for the first half of 2024 was 68.75% (+2.19pp), net profit margin 25.56% (-2.62pp), expenses were 6.88 million yuan (+59.94%), and expenses were 1.31% (+0.30pp). Management costs 61.73 million yuan (+0.77%), cost ratio 11.75% (-2.70pp), R&D expenses 0.149 billion yuan (+61.94%), cost ratio 28.32% (+6.66pp). Financial expenses -0.0151 million yuan (+88.47%), expense ratio -0.29% (+2.79pp). Furthermore, in terms of orders, demand grew steadily in the first half of 2024, and orders of 0.711 billion yuan were added in the first half of the year (+13.38% year over year).

The transformation of independent R&D technology achievements continues to gain strength, and the front-end business fluctuates slightly: 1. Funded R&D services: revenue of about 0.206 billion yuan (+5.8%) in the first half of 2024, of which pre-clinical pharmacy research achieved revenue of 0.113 billion yuan (-9.1%), clinical service sector 92.59 million yuan (+32.2%), 121 project registrations and 74 approvals were obtained in the first half of the year. We expect that fluctuations in front-end business are mainly due to increased domestic generic drug CRO competitive environment; 2. Independent R&D technology transfer: About 0.29 billion yuan (+52.4%) in the first half of 2024, we expect to gradually reap benefits as 40 pilot scale up and 30 verification production stage projects continue to advance; 3. CDMO: In the first half of 2024, Symer Pharmaceuticals undertook external customized R&D and production to achieve revenue of 5.12 million yuan (-70.4%). We expect the CDMO sector to gradually recover as CDMO production capacity gradually climbs and commercialization projects continue to be implemented; 4. Innovative drug research and development: The company's fastest-progressing BIOS-0618 clinical trial will continue to advance in the first half of 2024. We expect that as the project continues to expand, it is expected to bring some flexibility in performance.

Profit forecast and investment suggestions: Considering that the company's orders continue to be steady, the company's 2024-2026 revenue is expected to be 1.339 billion yuan, 1.757 billion yuan, and 2.27 billion yuan respectively, with growth rates of 31.59%, 31.21%, and 29.21% respectively. Considering the company's increased R&D investment this year and the decline in equity sharing business revenue with high gross margin, we expect the company's net profit to be 0.333 billion yuan and 0.411 billion yuan respectively billion yuan, 0.515 billion yuan (0.381 billion yuan, 0.51 billion yuan, 0.672 billion yuan before adjustment, 2024-2026, respectively), the growth rates were 22.57%, 23.39%, and 25.24%, respectively.

Considering that the company's orders continue to grow steadily, it is expected that the expansion of CDMO and innovative drug transformation will bring long-term growth and maintain a “buy” rating in the future.

Risk warning events: The public data used in the research report may have the risk of information being delayed or not updated in a timely manner, the risk of production capacity growth falling short of expectations, the risk of uncertain transfer of innovative drug R&D projects, the risk of declining gross margin, the risk of rising raw material supply and prices, environmental protection and production safety risks