1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 0.831 billion yuan, +107.5%; net profit to mother of 0.227 billion yuan, +442.77% year over year; net profit of 0.229 billion yuan, +433.45% year over year; operating cash flow of 0.198 billion yuan, +14.85% year over year; in line with our expectations.

Development trends

Independent product selection is rapid, and the international BD team continues to deepen customer cooperation. 1H24, revenue from self-selected products was 0.545 billion yuan, compared with +119.76%. We believe that strong revenue growth and significant increase in gross margin were mainly due to the rapid release of GLP-1 APIs and oseltamivir phosphate capsules. Customer development aspects: 1) Europe: cooperating with many generic drug companies for oral simeglutide and telpopeptide APIs; 2) United States: Liraglutide API cooperation to expand innovative animal peptide CDMO projects; 3) South America: signed a strategic cooperation agreement for simeglutide formulations and reached cooperation with leading generic drug products to mimic the marketing of liraglutide formulations; 4) India: Reach global marketing API cooperation with leading generic drug companies, and signed and promoted multiple oligonucleotide CDMO services; 5) China: Reached innovative P-GL1 Strategic cooperation in pharmaceutical raw materials and formulations.

CDMO grew steadily and undertook a number of innovative drug API projects. The revenue from customized products and services was 0.286 billion yuan, +88.16% year over year, and the gross profit margin was 60.1%, which is at the leading level. The company signed a long-term CDMO supply contract with a major European pharmaceutical company in May 2023 with a total contract amount of 0.102 billion US dollars. Delivery of the CDMO long-term supply contract began in 2Q24, and the company expects 2H24 to speed up the pace of delivery. The Jiande plant currently has a production capacity of 1.25 million liters. The company expects 0.22 million liters under construction to be put into use in 2024, and can provide customized production services from laboratory grade to ton level. 1H24, the company develops and undertakes a number of CDMO innovative drug API projects. We believe that with the gradual release of Phase II GMP production capacity, the company will steadily continue the business chain to the back end with higher stickiness and added value.

The high-quality production capacity layout is leading the way, and construction is progressing in an orderly manner. 1) Polypeptides: The company expects the 601 peptide workshop to complete installation and commissioning by the end of 2024, and the 602 peptide workshop 1H25 is expected to complete construction, installation and commissioning, and release 5 tons/year of peptide production capacity; at the same time, large-scale peptide upgrading projects will be launched to add larger tonnage polypeptide production capacity; 2) Formulation: The hard capsule production line in the oral solid formulation workshop will pass GMP compliance checks in July 2024 to achieve 4.5 capsule varieties such as ostamivir phosphate Annual production capacity of billion granules, new formulation factory The second phase of the construction project was launched.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 33.7 times/24.4 times. Maintaining an industry rating and a target price of 88.00 yuan, corresponding to 47.8 times the 2024 price-earnings ratio and 34.6 times the 2025 price-earnings ratio, with 41.7% upside compared to the current stock price.

risks

Price fluctuations of core products, loss of core technical personnel, fluctuations in API sales, formulation approval and sales falling short of expectations, exchange rate fluctuations, drug development risks, regulatory risks, and international trade risks.