Key points of investment:

Company releases report for the first half of 2024

2024H1: Revenue of 1.37 billion +12.2%, net profit of 0.28 billion +43.8%, net profit of non-return to mother 0.26 billion +43.2%;

2024Q2: Revenue of 0.78 billion +8.3%, net profit of 0.16 billion +31.2%, net profit of non-return to mother 0.15 billion +36.5%.

The API business is growing rapidly, and the formulation business is growing steadily

The overall revenue of 2024H1 was 1.37 billion, of which: 1) pharmaceuticals: revenue 1.09 billion, up 7.5% year on year, accounting for 79.5%; 2) pharmaceutical ingredients: revenue 0.11 billion, up 86.7% year on year, accounting for 8.4%; 3) pharmaceutical excipients: revenue of 0.09 billion, down 1.7% year on year, accounting for 6.7%; 4) plant extracts and others: revenue of 0.05 billion, up 48.5% year on year, accounting for 3.7%.

The fee control effect is remarkable, and the sales expense ratio has dropped significantly

The company continues to strengthen its ability to control terminal channels and continuously reduce sales expenses. 24H1's sales expenses rate was 40%, a year-on-year decrease of 8.7pct. For the full year of 2023, the company's sales expenses were 1.31 billion, and the sales expense ratio of the 23Q4-24Q2 company was 53.2%/40.5%/39.6%, respectively, and the company's fee control effect was remarkable.

The company is rich in research pipelines and has plenty of momentum for long-term growth

The company has now marketed key topical preparations, including loxoprofen sodium gel patch and ketoprofen gel patch. More than 20 topical formulation products are under development, of which 7 have been declared for production. The focus is on developing: lidocaine gel paste, loxoprofen sodium patch, flubiprofen gel patch, indomethacin gel paste, pepper seven musk gel patch (traditional Chinese medicine category 1), etc. The company has a rich layout of topical preparations, many products are under development, and the long-term growth momentum is strong.

Profit forecasting and investment advice

We expect net profit to be 0.52/0.68/0.89 billion yuan for 24-26 (maintaining the previous forecast value), corresponding PE to be 21/16/12 times, respectively. The company's performance is impressive, and the product matrix is formed, and long-term growth momentum is strong, maintaining a “buy” rating.

Risk warning

Risk of product sales and promotion falling short of expectations; increased risk of industry competition; risk of policy fluctuations; product development falling short of expectations.