Incident: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 1.269 billion yuan (yoy +13.3%), net profit to mother 0.4 billion yuan (yoy +14.91%), and net cash flow from operating activities of 0.35 billion yuan (yoy +37.8%). Meanwhile, the company declared an interim dividend of HK$0.3 per share.

Comment:

Nephrology series products maintained steady growth, while women's and children's products & bone injury series products grew at an impressive rate:

① 24H1 Kangchen Pharmaceutical Division's revenue was 1.108 billion yuan (yoy +13.75%). Specifically, the revenue of the nephrology series products was 0.883 billion yuan (yoy +11.2%). Among them, uretoxin granules are still the company's best products. In the face of the expansion of collection, 24H1 has achieved quantitative price compensation to maintain its leading position in the uretoxin granules market. The revenue for women's and children's products was 0.146 billion yuan (yoy +28.7%). The revenue from medical imaging contrast agents is about 0.078 billion yuan (yoy +21%), and it still occupies the leading position in the domestic magnetic resonance imaging contrast agent market. ② 24H1 Yulin Pharmaceutical Division's revenue was 0.16 billion yuan (yoy +10.27%). Specifically, bone injury series products sold 0.099 billion yuan (yoy +129.7%). Skin products sold 0.033 billion yuan (yoy -22.4%). Sales of hepatobiliary products decreased by about 55.6% compared to the same period last year. Sales of other drugs decreased by about 46.9% compared to the same period last year.

The 24H1 net interest rate increased slightly, and the 24-year dividend rate is expected to exceed 10%: ① 24H1's net interest rate increased by about 0.54 percentage points year on year (24H1 net interest rate reached 31.61%), and the increase in net interest rate was mainly due to a 1.05 percent year-on-year decrease in the company's expenses ratio during the period (44.14% during the 24H1 period). 24H1's gross margin decreased slightly by 0.01 percentage points year on year (24H1 gross margin was 74.69%). Among them, the gross margin of the Kangchen Pharmaceutical division fell 1.97 percentage points year on year to 76.99%; while the gross margin of the Yulin Pharmaceutical division increased 12.65 percentage points to 58.78%. ② The company focuses on sharing the company's operating results with shareholders. In 2021-2023, the company's dividend ratios were 32.84%, 30.00%, and 42.46%, respectively, while the dividend rates were 6.82%, 7.41%, and 9.43%, respectively.

24H1 declared an interim dividend of HK$0.3 per share (23H1 declared an interim dividend of HK$0.15 per share). In addition, in May '24, the company declared a special dividend of HK$0.3 per share to celebrate the 10th anniversary of its listing on the main board of the Hong Kong Stock Exchange. Assuming that the company will still declare a dividend of HK$0.3 per share at the end of '24, using the current base of 844.6883 million shares to summarize the special dividend, interim dividend, and year-end dividend, we expect the dividend rate corresponding to the current market value in '24 to be 14.92%. If the company does not declare a dividend at the end of '24, compiling special dividends and interim dividends, we expect a dividend rate of 9.95% corresponding to the current market value in '24.

Profit forecast: We expect the company's revenue for 2024-2026 to be 2.92 billion yuan, 3.287 billion yuan, and 3.684 billion yuan, respectively, with year-on-year growth rates of about 13%, 13%, and 12% respectively, and realized net profit to mother of 0.901 billion yuan, 1.03 billion yuan, and 1.18 billion yuan, respectively, up about 15%, 14%, and 15% year-on-year, corresponding to the current stock price PE 5.2 times, 4.55 times, respectively. 3.97 times

Risk factors: Procurement price reduction exceeds expectations, market competition intensifies, market development falls short of expectations, OTC marketing reforms fall short of expectations.