Incident: The company released its 2024 semi-annual report, achieving operating income of 6.639 billion yuan, +7.63%; net profit to mother of 1.72 billion yuan, -20.40% year over year; net profit after deducting non-return to mother of 1.737 billion yuan, -19.72% year over year; net operating cash flow 1.977 billion yuan, -2.24% year over year; EPS (basic) 4.28 yuan. The results were slightly lower than market expectations.

Comment:

Overseas and non-pediatric businesses increased their share of revenue, and expenditure increased markedly: in 2024Q1-Q2, the company's revenue in a single quarter was 3.177/3.461 billion yuan, +14.39%/+2.10%; net profit to mother was 0.859/0.861 billion yuan, +0.20%/-33.94% year over year; net profit of non-return mother 0.847/0.89 billion yuan, compared with -0.86%/-32.02% YoY. Looking at subsidiary companies, 24H1 Jinsai Pharmaceutical's revenue was 5.152 billion yuan, +0.25% year over year, and net profit to mother was 1.769 billion yuan, -19.49% year over year. The company accelerated sales of growth hormone and other products in the international market. Overseas regions achieved sales revenue of 85.238 million yuan, +267.78% over the same period; the share of revenue from products related to the non-pediatric elderly business increased further. Baike Biotech's revenue was 0.618 billion yuan, +10.05% year on year, net profit of 0.138 billion yuan, +23.54% year on year; Huakang Pharmaceutical's revenue was 0.391 billion yuan, +10.37% year on year, net profit was 0.024 billion yuan, +26.42% year on year; Hi-Tech Real Estate revenue was 0.456 billion yuan, +372.45% year on year, and net profit to mother 0.033 billion yuan, +533.17% year on year. 24H1's performance is under pressure, mainly related to revenue restructuring and a sharp increase in expense ratios. 24H1 management expenses were 0.551 billion yuan, or +53.71% over the same period last year, mainly due to the adjustment of the new BU management structure of Jinsai Pharmaceutical, the establishment of subsidiaries, and changes in the responsibilities of some sales personnel. The related expenses are calculated in management expenses.

R&D investment continues to increase, and innovation transformation is progressing steadily: 24H1 R&D investment amount was 1.138 billion yuan, +10.18% year over year, accounting for 17.14% of revenue, +0.40pp year on year; of these, costed R&D investment was 0.887 billion yuan, and capitalized R&D investment was 0.251 billion yuan. Recombinant human follicle-stimulating hormone injections, progesterone injections (II), etc. have been approved for marketing, and marketing applications for products such as kinnalizumab (powder), injectable triprorelin acetate microspheres, recombinant human follicle-stimulating hormone-CTP fusion protein injections, live attenuated nasal spray influenza vaccines (liquid preparations), and tibolone tablets have been accepted one after another. In terms of new product development progress, indications related to long-acting growth hormone products have been successfully developed. The final phase III clinical study of leuprorelin injection emulsion for advanced prostate cancer has been enrolled, the first patient has been enrolled in a phase III clinical study for central precocious puberty in children, and gentuximab injections for advanced gastric or gastroesophageal adenocarcinoma have entered phase III clinical trials.

Profit forecasting, valuation and rating: Considering the uncertainty of policies such as growth hormone collection and the increase in cost investment, the 24-26 net profit forecast was lowered to 4.235/4.63/4.943 billion yuan (down 17%/20%/24% from the previous year), -6.55%/+9.32%/+6.75%. The PE corresponding to the current price was 8/8/7 times, respectively. Considering the company's excellent operating quality and attractive valuation, the “buy” rating was maintained.

Risk warning: risk of growth hormone collection; risk of R&D and approval falling short of expectations.