Brief performance review

On August 22, 2024, the company released its semi-annual report. 1H24 revenue/return to mother/adjusted shareholder profit was 16.284/3.02/3.217 billion yuan, up 4.8%/1.7% year-on-year respectively. 2Q24 revenue/return to mother/adjusted shareholder profit of 16.284/3.02/3.217 billion yuan, a year-on-year decrease of 9.0%/8.5%/7.7%, respectively. The results fell slightly short of expectations.

Management analysis

The proprietary drug sector is steady, the neurological sector has maintained a growth trend, and the oncology sector is under pressure in the short term. (1) Performance: The revenue of 1H24's proprietary pharmaceuticals/vitamin/antibiotic ingredients/functional foods and other four major sectors was 135.49/0.984/0.871/0.88 billion, accounting for 83.2% of total revenue, up 4.8% year on year. The other three major sectors decreased 5.4%/6.4%/25.2% year over year, respectively. (2) Proprietary medicine sector, ① The neurological sector's revenue was 5.236 billion yuan, accounting for 38.6% of proprietary drug revenue, an increase of 15% over the previous year. Growth comes from core products such as EnbiPu, and the company's leading edge in the central nervous system continues. ② Revenue from the oncology sector was 2.683 billion yuan, down 10.2% year on year; mainly because Jinyouli and Domesil were affected by the centralized procurement of drugs by the Beijing-Tianjin-Hebei “3+N” Alliance. ③ Revenue from the cardiovascular sector was 1.229 billion yuan, down 4.5% year on year; mainly due to the impact of Xuning (amlodipine) collection, sales of Encun, Yishuning, and Daxinin had an ideal increase. ④ The revenue of the digestive metabolism sector was 0.647 billion yuan, an increase of 55.4% year-on-year.

Obetil has seen rapid sales growth and has become the leading brand of esomeprazole drugs in China.

(3) The raw materials and functional food sector generated revenue of 1.855 billion yuan, a year-on-year decrease of 5.8%. Among them, sales revenue of vitamin C and antibiotic products was 0.984/0.871 billion yuan, down 5.4%/6.4% year on year, respectively. Currently, the price of vitamin C is slowly picking up. The functional food sector, with revenue of 0.88 billion yuan, was affected by falling prices of caffeine products, down 25.2% year on year.

Innovation investment continues, and the pipeline of 8 major R&D platforms, including ADC, is ready to go. (1) 1H24 invested 2.542 billion yuan in R&D, accounting for 18.8% of proprietary drug revenue, an increase of 10.3% over the previous year.

Currently, there are more than 60 focused drugs in the clinical or reporting stage; of these, 7 have submitted marketing applications and 19 products (22 indications) are in the clinical registration phase.

In February and June 2024, Mingfule's second adaptation (thrombolytic treatment for patients with acute ischemic stroke) and Enshuxing (recurrent or metastatic cervical cancer, with conditions) were approved for marketing, respectively. (2) The progress of ADCs and many other potentially major pipelines of the company's eight major R&D platforms is worth watching.

Profit Forecasts, Valuations, and Ratings

We are optimistic about the company's follow-up pipeline. According to the company's interim report, the company's 2024/25 revenue will be lowered by 5.89%/7.88% to 32.96/35.2 billion yuan, and the 2026 revenue is expected to be 38.48 billion yuan; the 2024/25 net profit to mother will be reduced by 7.45%/8.71% to 6.265/6.776 billion yuan, and the net profit to mother is expected to be 7.441 billion yuan in 2026. Maintain a “buy” rating.

Risk warning

Risks such as the volume of collected varieties falling short of expectations, and the development and commercialization of new drugs falling short of expectations.