The results for the first half of 2024 exceeded expectations, with strong growth in the APIs sector. In the first half of 2024, the company achieved revenue of 6.429 billion yuan (+7.96%), net profit to mother of 0.625 billion yuan (+3.96%), net profit after deducting non-return to mother 0.602 billion yuan (+1.24%), gross profit margin of 24.70% (-1.90pct), and net profit margin of 9.72% (-0.37pct). The growth of 2024Q2's API intermediates sector exceeded expectations, the CDMO sector achieved positive month-on-month growth, and the formulation sector maintained relatively rapid growth. We are optimistic about the long-term development of the company and maintain the company's profit forecast. We expect the company's net profit to be 1.238/1.462/1.7 billion yuan in 2024-2026, and the PE corresponding to the current stock price is 12.9/10.9/9.4 times, maintaining a “buy” rating.

The formulation business grew rapidly, and the “multi-variety” development strategy continued to drive the company's formulations to achieve revenue of 0.68 billion yuan (+18.37%), gross profit of 0.41 billion yuan (+41.67%), and gross margin of 60.30% (+9.92pct) in the first half of 2024. In the first half of 2024, the company submitted registration applications for oseltamivir phosphate capsules, cefadinib capsules, levocarnitine injections, cefadinib capsules, amoxicillin clavulanate potassium tablets in China, and amphetadone hydrochloride sustained-release tablets (II) were submitted to the FDA; currently 51 research projects have been completed, 9 verification projects have been completed, and 6 declared projects, involving anti-infective, cardiovascular, central nervous system, phlegm and cholelithiasis, etc., and weight loss and reduction projects are expected to enter the fourth quarter of 2024 clinical stage.

The API business grew strongly, and the core competitiveness of the CDMO business continued to increase in the first half of 2024. The company's API and intermediate business revenue was 4.704 billion yuan (+11.89%), and the gross margin was 16.22% (-2.30pct). The company added 15 new API customers in the first half of the year, and 2 API product registrations were approved (15003-A, 16001). The 303 and 304 high-end API production workshops were completed and put into use in March 2024. The company plans to build a peptide production line, which is currently in the design stage. In the first half of 2024, the company's CDMO business achieved revenue of 1.028 billion yuan (-9.82%), gross margin of 40.09% (-4.68pct) (excluding the impact of special projects, CDMO business revenue and gross profit maintained normal year-on-year growth), 731 quotation projects (+51%), and 876 ongoing projects (+44%). The construction of the company's Boston laboratory in the US was completed in May, and the new biological fermentation extraction pilot plant has entered the final stage.

Risk warning: Competition in the CDMO industry is intensifying, the price of chemical raw materials is rising, and the dosage of formulations falls short of expectations, etc.