Matters:

The company announced its 2024 semi-annual report, achieving revenue of 1.366 billion yuan (+12.19%), net profit to mother of 0.284 billion yuan (+43.77%), and net profit not returned to mother of 0.255 billion yuan (+43.24%). The results were in line with expectations.

Among them, 24Q2 achieved revenue of 0.775 billion yuan (+8.31%), net profit to mother of 0.158 billion yuan (+31.24%), and net profit to mother of 0.149 billion yuan (+36.52%) in a single quarter.

Ping An's point of view:

Sales and profits have maintained rapid growth, and revenue growth has been dragged down by falling prices. 24H1's revenue was 1.366 billion yuan (+12.19%) and net profit was 0.284 billion yuan (43.77%), and the profit side maintained rapid growth; the reason why the revenue side growth rate was lower than the profit side was mainly due to the fact that the implementation of national and provincial collection reduced the prices of some products. In particular, the core product loxoprofen sodium gel patch has been included in regional alliances one after another. 24H1's gross margin was 73.14% (-4.60 pp), and the net profit margin was 20.80% (+4.57%). The increase in net profit margin was mainly due to a decrease in sales expenses.

The 24H1 sales expense ratio was 39.98% (-8.74 pp). The decline was due to collection execution and the company's shift to a semi-direct sales model.

The growth logic has moved from a large single product release type to a platform type, and the leading position for external administration is stable. As of 24H1, the company has entered the registration process for topical administration of drugs such as promethicaine cream, lidocaine gel paste, loxoprofen sodium gel patch, loxoprofen sodium gel patch, indomethacin gel patch, etc. We expect that these varieties will be approved in 1-2 years, driving the company's large-scale dosage logic to move towards an external dosing platform logic while improving long-term growth space and risk resistance.

Optimistic about the company's long-term development and maintaining a “recommended” rating. We are optimistic about the company's growth space in the field of transdermal administration. With the release of ketoprofen gel patches and the gradual approval of the products under development, the performance is expected to continue to grow rapidly. We maintain our 24-26 net profit forecast of 0.505 billion, 0.676 billion, and 0.886 billion yuan respectively. The current stock price is only 21 times PE in 2024, maintaining the “recommended” rating.

Risk warning. 1) R&D risk: The company is developing many varieties, and there is a risk that R&D will fail or progress will fall short of expectations; 2) Price reduction risk: the company's core products may continue to drop in price; 3) Risk of product release falling short of expectations: The sales scale of the company's core products is getting larger, and there is a possibility that the volume will fall short of expectations.