Key points of investment:

Company releases 2024 semi-annual report

2024H1: The company achieved revenue of 0.86 billion yuan, a year-on-year decrease of 19%, net profit of 0.18 billion yuan, a year-on-year increase of 53.6%, after deducting non-attributable net profit of 0.18 billion yuan, an increase of 60.6% year-on-year.

2024Q2: The company achieved revenue of 0.39 billion yuan, a year-on-year decrease of 12.1%, net profit to mother of 0.08 billion yuan, a year-on-year increase of 137.9%, after deducting non-attributable net profit of 0.08 billion yuan, a year-on-year increase of 196.9%.

The gross margin of the API business is clearly flexible. The company's gross margin remained high and achieved revenue of 0.86 billion yuan in the first half of 2024, of which: 1) formulation business: revenue 0.58 billion yuan, down 1.5% year on year, accounting for 68.3% of total revenue, gross margin of 61.4%, down 2 pcts year on year; 2) API business: achieved revenue of 0.27 billion yuan, down 41.3% year on year, accounting for 31.5% of total revenue, gross margin of 33.7%, up 20.3 pcts year on year; 3 ) The company's gross margin remains high: Driven by the elasticity of the gross margin of the API business, the company's overall gross margin improved significantly. 23Q4/24Q1/24Q2, the company's overall gross margin was 44.7%/53.1%/52.2%, respectively, and remains high.

By binding high-quality upstream resources, the API business is expected to achieve breakthroughs.

The company binds high-quality pork small intestine resources, which is expected to help develop high-end customers. The company is a leading domestic heparin API, and Muyuan is a leading domestic pig breeding and slaughter enterprise. The pig breeding capacity is about 80 million heads/year, and the total slaughter production capacity is 29 millionheads/year. In January '23, the company and Muyuan established a subsidiary, Henan Qianmu, to deeply bind Muyuan's high-quality pork small intestine resources. The two have strong alliances and are of great strategic significance, helping to develop the needs of high-end API customers and achieve rapid export business growth.

Lay out innovative drugs to open up space for growth.

The company lays out innovative drug pipelines to open up room for long-term growth. The company has 2 innovative drugs that have entered phase II clinical trials, and 2 innovative drugs are about to enter phase II clinical trials, including:

QHRD107 is in a phase II clinical trial to treat acute myeloid leukemia; QHRD106, an injection targeting KLK, is used to treat ischemic stroke. The results of the phase 1 clinical trial showed “good safety and stable efficacy”, and was unanimously recommended by the expert group to enter the phase II clinical trial. Currently, it is in the phase 2 clinical trial enrollment phase.

Profit forecasting and investment advice

The company is a leading domestic enterprise for heparin-based APIs and enzyme preparations, and the company lays out innovative drugs to open a second growth curve. The company's net profit for 24-26 is 0.31/0.38/0.44 billion yuan respectively (maintaining the previous forecast), corresponding PE is 23.2/19/16.5 times, respectively, maintaining a “buy” rating.

Risk warning

Risk of falling product sales price & sales volume, risk of R&D progress falling short of expectations, risk of increased operating costs