The integrated advantages of API formulations have been enhanced, and the core competitiveness of enterprises has been continuously enhanced. According to the company's semi-annual report, the company achieved operating income of 6.429 billion yuan in the first half of 2024, an increase of 7.96% over the previous year; realized net profit of 0.625 billion yuan, an increase of 3.96% over the previous year; and realized net profit after deducting non-return to mother of 0.602 billion yuan, an increase of 1.24% year on year. By the end of the first half of 2024, the company had 1,085 R&D personnel, a R&D cost of 0.315 billion yuan, two API product registrations were approved, and 20 new pharmaceutical ingredients were submitted to domestic and foreign DMF.

The scale effect of the formulation business led to a significant increase in profitability, and the CDMO business grew steadily. According to the company's semi-annual report, in the first half of 2024, the company's API intermediates business achieved revenue of 4.704 billion yuan, a year-on-year increase of 11.89%, achieving gross profit of 0.763 billion yuan, a year-on-year decrease of 1.99% and gross margin of 16.22%; the CDMO business achieved revenue of 1.028 billion yuan, a year-on-year decrease of 9.82%, achieving gross profit of 0.412 billion yuan, a year-on-year decrease of 19.25% and a gross profit margin of 40.09%, excluding operating income after being affected by special projects and Gross profit continued to grow year over year. The pharmaceutical business achieved revenue of 0.68 billion yuan, an increase of 18.37% over the previous year, and achieved gross profit of 0.41 billion yuan, an increase of 41.67% over the previous year, and a gross margin of 60.30%. Among them, in the first half of 2024, CDMO quoted 731 projects, up 51% year on year, 317 commercialization projects increased 28% year on year, and 18 API commercialization projects; the formulation business currently has more than 150 in-hospital and out-of-hospital sales teams, 51 ongoing research projects, 9 verification projects, and 6 application projects.

Profit forecasting and investment advice. As the company continues to improve operational efficiency, take advantage of the integrated advantages of API formulations and the improvement of the macro environment, we believe that the company's gross margin is expected to continue to increase. The net profit for 24-26 is 1.178 billion yuan, 1.397 billion yuan, and 1.721 billion yuan, respectively, EPS is 1.01 yuan/share, 1.19 yuan/share, and 1.47 yuan/share, respectively, corresponding to PE 15/13/10 times. Considering that the company's profitability is still improving, the judgment that the reasonable value of the company's A shares is 16.99 yuan/share remains unchanged, corresponding to 17 times PE in 24 years, maintaining the “buy” rating.

Risk warning. Supply chain risk, exchange rate fluctuation risk, regulatory review risk, etc.