Incident: The company released its 2024 semi-annual report. During the reporting period, the company achieved revenue of 6.429 billion yuan (+7.96%), net profit of 0.625 billion yuan (+3.96%), deducted non-net profit of 0.602 billion yuan (+1.24%); of these, the second quarter achieved revenue of 3.231 billion yuan (+12.61%), net profit of 0.381 billion yuan (+5.35%), net profit to mother of 0.363 billion yuan (+ 5.35%). +0.48%).

H1's performance reached a record high, and the active formulation of APIs grew rapidly: Despite the complex and difficult external situation, the company's operating performance reached a record high under a high base. By business, the API business was steady, achieving revenue of 4.704 billion yuan (+11.89%), gross profit margin of 16.22% (-2.30pct); CDMO business was affected by special projects in the same period last year, achieving revenue of 1.028 billion yuan (-9.82%) and gross profit margin of 40.09% (-4.68pct); the formulation business grew rapidly and profitability improved significantly, achieving revenue of 0.68 billion yuan (+18.37%) and gross profit margin of 60.30% (+ 9.92pct). The company's 24H1 gross margin was 24.70% (-1.90pct) and net margin was 9.72% (-0.37pct). The company's sales, management, finance, and R&D expenses were 4.36% (-0.13pct), 3.65% (-0.45pct), -0.72% (+0.44pct), and 4.90% (-1.01pct), respectively.

APIs are progressing steadily, the number of CDMO projects is increasing, and the “multi-variety” formulation strategy is progressing: In terms of APIs, the market share and gross margin of the company's core products are steadily rising, new customer development continues to advance, and 24H1 has added 15 new customers, and the future business is expected to grow steadily. On the CDMO side, the high number of projects has laid the foundation for future development. As of today, 24H1 has quoted 731 projects (+51%) and 876 ongoing projects (+44%), including 317 in the commercialization phase (+28%) and 559 in the R&D phase (+54%). There are 103 API projects (+49%), including 18 in the commercialization phase, 13 in the verification phase, and 72 in the R&D phase. In terms of formulations, the company is promoting a “multi-variety” strategy. Currently, there are more than 120 formulations, 51 research projects, 9 verification projects, and 6 application projects. Continued enrichment of the formulation product line will bring more room for development.

Investment proposal: We expect the company to achieve operating income of 12.564/14.15/16.087 billion yuan and net profit to mother of 1.146/1.392/1.645 billion yuan in 2024-2026. The corresponding PE is 15.14/12.47/10.55 times, respectively.

Risk warning: risk of API price fluctuations; project commercialization falling short of expectations; risk of exchange rate fluctuations.