1H24 results are in line with market expectations

The company announced 1H24 results: revenue of 4.389 billion yuan, up 16% year on year, higher than our expectations; net profit to mother was 1.09 billion yuan, up 11% year on year; adjusted net profit to mother was 1.112 billion yuan, up 1.5% year on year, in line with our and market expectations.

Development trends

Core products showed a steady growth trend. According to the announcement, 1) Turbie Australia: 1H24 had sales of 2.48 billion yuan (YoY +22.6%), and its market share continued to rise to 66%. New ITP indications for children and adolescents in Terbiao were approved in April 2024. The company expects CLDT (chronic liver disease-related thrombocytopenia) to be approved in 25; 2) erythropotropin: 1H24 sales of 0.516 billion yuan (YoY +11.3%), the market share is stable among EPO products, and perioperative anemia indications are included in the 2023 medical insurance payment scope; 3) Exipp: 1H24 has sales of 0.329 billion yuan (YoY +9.5%), and the prefilled dosage form is already in 2023 Launched sales in May; 4) Septin: 1H24 sales of 0.162 billion yuan (YoY +48.9%) maintained rapid growth after the release of combined use restrictions in early 2023; 5) Mandy: 1H24 sales of 0.55 billion yuan (YoY +10.0%), and the foam form was approved for OTC listing in January 2024. Health insurance negotiations in the second half of the year proposed focusing on Terbiao contract renewal and nafurafine hydrochloride (Remitch).

The research pipeline is progressing smoothly. The company expects to declare NDA varieties in the next 3 years: 1) 2024: Terbiao CLDT indications, 608 (anti-IL-17 antibody) for moderate to severe psoriasis, SSS06 (long-term EPO) for CKD anemia; 2) 2025: CS1003 (PD-1) for advanced liver cancer, Winlevi for acne vulgaris over 12 years old, 613 (IL-1beta antibody) for acute gout arthritis; 3) 2026: Simeglutide (GLP-1) approved as an indication for weight loss, 611 (IL) 4R antibodies) treat atopic dermatitis in adults, and SSS17 (HIF inhibitors) treat post-operative anemia.

BD continues to progress. In May 2024, the company announced that its subsidiary Sansheng Mandi and Hanyu Pharmaceutical had reached a cooperation on simeglutide injections (weight loss indications) to obtain exclusive marketing rights for its products in China and other regions with milestone payments of up to 0.27 billion yuan and subsequent sales commissions. We believe that the cooperation between the company and Hanyu Pharmaceutical is expected to give full play to the collaborative advantages of the two sides and jointly explore the product market. At the same time, we also look forward to the company's self-developed products going overseas through licensing in the future.

Profit forecasting and valuation

Considering the continued increase in the market share of the company's core products, we raised our 24/25 revenue forecast by 3%/2% to 8.856/9.631 billion yuan, further considering the reduction in interest expenses due to the optimization of the company's balance and liability structure, and raised the 24/25 net profit forecast by 8%/7% to 1.907/2.171 billion yuan, keeping the 2024/2025 adjusted net profit of 2.149 billion yuan/2.409 billion yuan unchanged. The current stock price corresponds to an adjusted price-earnings ratio of 5.7 times/4.9 times in 2024/2025 to maintain an outperforming industry rating. Considering the recent relative fluctuations in the Hong Kong stock valuation environment, we temporarily maintain a target price of HK$8.00, corresponding to 8.0 times the adjusted price-earnings ratio for 2024 and 6.8 times the adjusted price-earnings ratio for 2025, implying an upward margin of 39.6%.

risks

Procurement prices have been reduced, competition has intensified, research and development has failed, and commercialization of new products falls short of expectations.