Core views:

The company released its 2024 mid-year report. 2024H1 achieved revenue of 6.639 billion yuan (+7.63%, the following are year-on-year values), net profit to mother of 1.72 billion yuan (-20.40%), and net profit after deducting non-return to mother of 1.737 billion yuan (-19.72%).

Growth hormone has maintained steady growth, and increased investment in the transformation cycle has put pressure on the profit side. By business type, 24H1 Jinsai Pharmaceutical achieved revenue of 5.152 billion yuan (+0.25%) and net profit of 1.769 billion yuan (-19.49%); Baike Biotech achieved revenue of 0.618 billion yuan (+10.50%) and net profit of 0.138 billion yuan (+23.54%); Huakang Pharmaceutical achieved revenue of 0.391 billion yuan (+10.37%) and net profit of 0.024 billion yuan (+ 26.42%); Hi-Tech Real Estate achieved revenue of 0.456 billion yuan (+372.45%) and net profit to mother of 0.033 billion yuan (+533.17%). 2024h1's gross margin decreased by 4.13pp to 84.62%. Sales, management, R&D, and financial expenses ratios were +0.47pp, +2.49pp, +1.96pp, and +0.14pp, respectively, and the net profit margin fell 8.74pp to 35.42% year-on-year. The decline in gross margin was due to an increase in the share of revenue from the real estate business with lower gross margin. The increase in management expenses was mainly due to changes in accounting processing due to the adjustment of the new BU management structure of Jinsai Pharmaceutical and the establishment of related next-generation subsidiaries.

Investment in R&D continues to be increased, and strategic transformation is progressing steadily. 24H1 invested 1.138 billion yuan (+10.18%) in R&D, and the product layout continues to deepen. 24H1 obtained the “Drug Registration Certificate” for recombinant human follicle-stimulating hormone injections, progesterone injections (II), etc., and applications for marketing of products such as injectable kinazumab, injectable triprorelin acetate microspheres, recombinant human follicle-stimulating hormone-CTP fusion protein injections, and live attenuated nasal spray influenza vaccines (liquid formulations) were accepted one after another.

Profit forecasting and investment advice. We expect the company's 2024-2026 EPS to be 10.16, 11.06, and 12.43 yuan/share, respectively. Referring to comparable company valuations, the company will be given 14 times more reasonable PE than 2024, corresponding to a reasonable value of 142.27 yuan/share for the company, giving it a “buy” rating.

Risk warning. Growth hormone market expansion falls short of expectations; progress of products under development falls short of expectations; increased investment in R&D may have dragged down the company's performance.