The profit for the first half of 2024 was in line with our expectations

The company announced its results for the first half of 2024: operating income of 6.282 billion yuan, -6.09%; net profit to mother of 1.17 billion yuan, +3.21% year over year; after deducting non-net profit of 1.16 billion yuan, +5.65% year over year, 1H24 profit in line with our expectations.

Development trends

In the first half of the year, the chemical sector maintained good growth for sexotropin products and neuropsychiatric products. First half of 2024:1) The digestive tract sector (accounting for 20.71% of total revenue) revenue was 1.3 billion yuan, -19.96% year over year, and revenue for the second quarter was 0.712 billion yuan, up 20.8% month on month. 2) The sex hormone sector (accounting for 24.65% of total revenue) revenue was 1.549 billion yuan, an increase of 12.51% over the previous year. 3) The spiritual sector (accounting for 4.72% of total revenue) revenue was 0.297 billion yuan, an increase of 6.68% over the previous year.

BD further intensified. As of August 2024, the innovative P-CAB product JP-1366 tablets introduced by the company BD, HHT120 capsules to prevent venous thromboembolism after major orthopedic surgery, and SG1001 tablets for aggressive mycoses have all entered clinical phase I. As of August, the company has also successively introduced innovative PDE5 inhibitors and KCNQ2/3, an innovative neuropsychiatric drug in the field of andrology.

Microsphere and biological product pipelines are gradually being enriched. As of August 2024, in terms of microspheres, injectable aripiprazole microspheres (1-month extended release) have been declared for production in 2023; injectable leuprorelin acetate microspheres (11.25mg) and paliperidone palmitate injections are undergoing BE tests. In terms of biological products, 1) the recombinant human follicle-stimulating hormone injection completed the phase III trial at the end of February this year, 2) the use of simeglutide injection for type II diabetes has been reported, and the company is preparing a phase III clinical trial for weight loss indications; 3) the recombinant anti-human IL17A/F monoclonal antibody psoriatic disease and ankylosing spondylitis indications completed all subjects enrolled in the phase III trial in April and July 2024, respectively.

The diagnostic sector is growing rapidly, and the gross margin of the traditional Chinese medicine sector has increased. 1H24's revenue from diagnostic reagents and equipment was +32.33% to 0.394 billion yuan, mainly due to rapid growth in respiratory and major infectious disease products.

2) The revenue of the APIs and intermediates sector was -1.16% to 1.761 billion yuan, and the company continues to focus on the three major export business segments (high-end antibiotics, pet insecticides and intermediate products). 3) The revenue of the Chinese medicine sector was -21.89% to 0.745 billion yuan, with a gross profit margin of 75.57%, +7.08 percentage points year-on-year.

Profit forecasting and valuation

We keep the 2024/2025 EPS forecast unchanged at 2.38 yuan/2.62 yuan. The current A share price corresponds to the 2024/2025 price-earnings ratio of 14.9 times/13.6 times, and the H share price corresponds to the 2024/2025 price-earnings ratio of 8.9 times/8.1 times the price-earnings ratio. We keep A-shares outperforming the industry rating and target price of 44.8 yuan unchanged, corresponding to a price-earnings ratio of 18.8 times/17.1 times in 2024/2025. The current stock price has room for an upward trend of 26.0%. We keep H shares outperforming the industry rating and target price of HK$30.12, corresponding to a price-earnings ratio of 11.4 times/10.4 times in 2024/2025. The current stock price has an upward margin of 27.9%.

risks

The risk of R&D failure, and the risk of price reduction in collection exceeding expectations.