Key investment points

Incident: The company released its 2024 mid-year report. 2024H1 achieved operating income of 0.856 billion yuan (YoY, same below, -19.04%), net profit due to mother 0.183 billion yuan (+53.57%), net profit of 0.179 billion yuan (+60.64%) after deducting non-attributable net profit of 0.179 billion yuan (+60.64%). Q2 achieved revenue of 0.394 billion yuan (-12.05%), net profit to mother of 0.079 billion yuan (+137.87%), and net profit of non-return to mother 0.077 billion yuan (+196.88%). The results were in line with expectations.

Revenue from the API sector was under pressure in the short term, and the profit side recovered significantly: the 2024H1 API segment's revenue was 0.269 billion yuan (-41.34%), mainly due to the fact that the downstream inventory removal cycle for heparin APIs has not ended, and heparin prices continued to bottom out. The 2024H1 API sector achieved a gross profit margin of 33.7% (+20.31PCT). As upstream pig prices fell, the price of crude heparin fell sharply, which is beneficial to companies with low inventories. The company is one of the companies with the lowest inventory of heparin APIs. It directly enjoys profit margins, and has significantly recovered its gross margin. Construction in Qianmu, Henan is progressing smoothly. It is expected that after implementation at the end of 2024, the company will be able to produce high-quality traceable heparin APIs to meet the original research and procurement requirements.

The formulation sector remains stable, and we are optimistic about the sales volume of protease products: the 2024H1 formulation segment achieved revenue of 0.584 billion yuan (-1.49%) and a gross profit margin of 61.36% (-1.99PCT). The formulation business remained steady, and enoxaparin sodium entered the collection as a “barefoot variety”, contributing a certain amount of growth. Stable dosage of Yikai and Yimei. In addition to strengthening hospital brand development, the Yimei series products are also actively exploring a new OTC strategic cooperative marketing model in cooperation with Bayer Pharmaceuticals of Germany, continuously improving brand awareness and market competitiveness, and becoming another major enzyme formulation brand product of the company.

Innovation and transformation are progressing smoothly, providing long-term growth momentum: QHRD107 and 106 have entered clinical phase 2 in a single dose and are progressing smoothly. 1) Recurrent refractory acute myeloid leukemia (AML) is the most common adult leukemia, but the 5-year overall survival rate is the lowest among all hematologic tumors. There are 0.024 million new cases per year in China. The phase 1 clinical study on QHRD107 (target CDK9) treatment of AML has been completed, and the “positive clinical trial results and good safety” were unanimously recognized by researchers at the phase II clinical trial phased analysis meeting. The domestic target is leading in progress, oral administration, and safety is good. 2) China's stroke 100 billion market, the company's QHRD106 targets kinin peptide-releasing enzyme (KLK).

Compared to the same target Ureklin, QHRD106 is a long-acting preparation that can be administered intramuscularly once a week, which is more convenient. The results of the first phase clinical trial showed “good safety and stable efficacy”, and it was unanimously recommended by the expert group to enter the phase II clinical trial.

Profit forecast and investment rating: Considering the impact of heparin API prices on the company's performance in the short term and the mid-term impact on the company's performance after the completion of Qianmu, Henan, we adjusted the 2024-2025 net profit from 3.32/4.06 to 0.331/0.379 billion yuan, and the net profit to the mother in '26 was 0.423 billion yuan. In 2024-2026, corresponding to the current market value P/E valuation 22/19/17X; considering the company 1) the gross margin of heparin raw materials was repaired and downstream demand rebounded; 2) protease preparations The business is progressing steadily; 3) Innovation and transformation are progressing smoothly, providing long-term growth momentum and maintaining a “buy” rating.

Risk warning: There is a risk of uncertainty in the heparin cycle; risk of R&D failure; risk of capital chain breakdown.