Key points of investment

Incident: The company's 2024H1 revenue was 11.83 billion yuan (+10% year-on-year, same below), net profit to mother 1.8 billion yuan (+28%), after deducting non-attributable net profit of 1.75 billion yuan (+30%). Among them, 24Q2 revenue was 5.61 billion yuan (+9%), net profit attributable to mother was 0.77 billion yuan (+31%), and net profit not attributable to mother was 0.76 billion yuan (+36%). Profit growth has exceeded expectations, and the company's multi-sector collaboration is optimistic about the annual performance: 1) infusion market development and product structure optimization, leading to both revenue and profit increases; 2) API intermediate prices and market recovery, and cost management to reduce costs and increase efficiency; 3) Actively promoting an “innovation-driven” strategy. Columbite's overseas expansion is expected to bring both revenue and profit increases.

The upgrading of infusions, generic drugs, and APIs has brought about long-term steady growth: 1) Large infusions: large infusions bring restorative growth, leading companies benefit more; the company expands market share and continues to optimize the product structure to increase the revenue share of high-value-added nutritional infusions and sealed, high-end packaging materials (powder double chamber bags, three-chamber bags, etc.) products. 2) Generic drugs/formulations: The variety of products in stock should be exhausted. New products under development can also be released “barefoot” through collection. In the field of multiple diseases, high-end formulation technology is strong, and the growth momentum is strong. 3) Twining Biotech: Prices of 6-APA and 7-ACA rebounded, and synthetic biology gradually implemented the product matrix, contributing to increased performance.

Innovation continues to be realized, and Collumbott and MSD are promoting clinical trials efficiently: 1) MSD is deeply cooperating, and we expect to continue to have milestone revenue in the future; 2) K Pharmaceuticals has been approved for 30+ indications globally, and 24H1 has sales of 14.2 billion US dollars. It is expected that key patents will expire in 2028. MSD rapidly promoted 10 global phase III studies of SKB264, and ESMO is expected to read out gynecological tumor data this year; 3) SKB264 is expected to become the first TROP2 ADC to be marketed in China, and A166 (HER2 ADC) is expected to become the first domestic ADC to treat HER2-positive breast cancer in China. A total of 4 products will be marketed domestically in 25 years; 4) Early research: nuclear drugs, dual anti-ADC, double payload ADC, and non-tumor ADC are gradually advancing clinical trials.

Profit forecast and investment rating: We expect net profit due to mother for 2024-2026 to be 2.95/3.53/4.24 billion yuan, and the current market value corresponds to 2024-2026 PE 17/14/12 times, respectively.

For the first time, the three major businesses are making steady progress, achieving innovation and efficiency, and being given a “buy” rating for the first time.

Risk warning: failure in the development of new drugs, risk of collecting generic drugs, falling prices of APIs and intermediates, worsening market competition, etc.