Rapid growth continued under a high base, and profit margins continued to rise. Maintaining a “buy” rating of 2024H1, the company achieved operating income of 1.367 billion yuan (+12.19% year over year, not marked as a year-on-year scale); net profit to mother of 0.284 billion yuan (+43.77%); net profit of 0.255 billion yuan (+43.24%) after deducting non-return to mother. The company's 2024H1 gross profit margin was 73.14% (-4.60pct); net margin was 20.80% (+4.57pct). 2024H1 company's sales expense ratio is 39.98% (-8.74pct); management expense ratio 2.99% (-0.61pct); R&D expense ratio 8.35% (+0.87pct); net cash flow from operating activities is 0.418 billion yuan (+111.71%).

Looking at 2024Q2 alone, the company's revenue was 0.775 billion yuan (+8.31%, +31.20% month-on-month); net profit due to mother 0.158 billion yuan (+31.24%, +26.09% month-on-month); and the company's net profit withheld from non-mother was 0.149 billion yuan (+36.52%; +40.64% month-on-month), and the growth was still rapid under a high base. The 2024Q2 company's gross profit margin was 73.52% (-6.22pct, +0.88pct month-on-month); the company's net profit margin was 20.44% (+3.57pct, -0.83pct). 2024Q2 sales expense ratio 39.59% (-10.94pct, -0.91pct month-on-month); management expense ratio 2.73% (-0.69pct, month-on-month -0.60pct); R&D expense ratio 9.43% (+2.66pct, month-on-month +2.50pct).

We expect that the company's profit will maintain rapid growth mainly due to rapid growth in in-hospital sales and rapid growth in the out-of-hospital market after harvesting of the core product loxoprofen sodium gel patch. At the same time, the company's slower revenue growth rate than profit growth is due to the effects of reduced collection prices, sales reform expenses, and an increase in the proportion of highly profitable out-of-hospital hospitals. We are optimistic about the company's market advantage in the field of transdermal drug delivery and maintain the original profit forecast. We expect the company's net profit to be 0.51/0.646/0.805 billion yuan respectively in 2024-2026, EPS is 1.05/1.33/1.66 yuan/share, respectively. The current stock price corresponds to PE 21.2/16.7/13.4 times, respectively, maintaining a “buy” rating.

Increase investment in R&D, and strive to build a transdermal formulation platform company 2024H1 invested 0.117 billion yuan in R&D, an increase of 23.54% over the previous year, and maintained a high level of investment. Currently, the company has 3 registration certificates for topical preparations, and loxoprofen sodium gel patch is in the rapid release stage; it is developing more than 20 topical formulation products, of which 7 have been declared for production. With the smooth progress of approval, the developed paste and loxoprofen sodium patch such as lidocaine, indomethacin, flubiprofen, and loxoprofen sodium patches are expected to be approved for marketing in the next 1-2 years. At that time, the company will have a variety of transdermal drugs with diverse performance growth points, and business is expected to continue to improve steadily.

Risk warning: risk of changes in industry policy, risk of new drug development, risk of raw material supply and price fluctuations, etc.