The company's 2024 mid-year report: In the first half of 2024, the company achieved operating income of 0.492 billion yuan, an increase of 5.05% over the previous year; net profit to mother of 0.18 billion yuan, an increase of 12.26% over the previous year; net profit after deducting non-return to mother of 0.172 billion yuan, an increase of 12.44% over the previous year. In the second quarter of 2024, the company achieved operating income of 0.191 billion yuan, a year-on-year decrease of 7.12%; net profit to mother of 67.35 million yuan, an increase of 1.24% year on year; net profit after deducting non-return to mother of 63.81 million yuan, an increase of 4.52% year on year.

24H1's overall operation is steady, management/R&D expenses have decreased significantly, and profitability has increased. 24H1 gross margin was 59.80% (YoY +1.80pp), 24Q2 gross margin 62.19% (YoY +5.32pp, YoY +3.90pp). 24H1 net margin was 36.52% (YoY +2.34pp), 24Q2 net profit margin 35.17% (YoY +2.90pp, YoY -2.21pp). 24H1, the company's expense ratio for the period was 16.27% (-1.99pp). Among them, sales/management/ R&D/finance expenses rates were -0.32/-3.32/-2.01/+3.68pp, respectively. The management/R&D expense ratio decreased significantly, reflecting the good results of the company strengthening internal management, improving processes and controlling costs. Changes in financial expenses were mainly due to a decrease in exchange gains and losses due to changes in the US dollar exchange rate.

Revenue split by product: Liver disease revenue 0.165 billion yuan (yoy +3.01%), gross profit margin 75.30%; cardiovascular income 0.103 billion yuan (yoy +18.74%), gross profit margin 51.57%; antimicrobial revenue 0.086 billion yuan (yoy +17.46%), gross profit margin 49.84%; other income 0.044 billion yuan (yoy -22.78%), gross profit margin 44.27%; gout income 0.041 billion yuan (yoy -26.12%), gross profit margin 26.75%; technical service fee revenue 0.029 billion yuan (yoy +66.65%), gross profit margin 92.50%; prostaglandins income 0.015 billion yuan (yoy +11.05%), gross profit margin 83.10%; neurological income 0.004 billion yuan (yoy +28.16%), gross profit margin 20.30%; anti-tumor revenue 0.003 billion yuan (yoy+) 2719%), gross profit margin 54.90%; high-end fluorine products revenue 0.002 billion yuan (yoy +9.64%), gross profit margin 81.45%.

With specialty APIs as the foundation, we insist on R&D driven development, and continuously improve product competitiveness. The company's main products, such as entecavir, bicyclic alcohol, posaconazole, sitafloxacin, nebivolol, and febuxotam, rank among the highest in international market share. The company adheres to the development concept of “no future without R&D; R&D drives development, big R&D achieves unconventional rapid development”, continuously increases process improvements and production management levels, greatly reduces production costs, and ensures the competitiveness of the company's products.

The integration of API formulations is gradually entering the implementation period: the company's “High-end Formulation Internationalization Project” is progressing normally according to the project schedule. The main products of the project are highly active targeted anti-tumor tablets/capsules and ordinary oral solid tablets/capsules. We expect that with the gradual implementation of formulation capacity and the approval of pharmaceutical products cooperating with STADA, the company will gradually open up a new growth curve.

Profit forecast and investment rating: The company's major R&D drives development, continues to strengthen the competitiveness of specialty API intermediate products, and the development of formulations is accelerating. As the cooperation between the company and STADA progresses steadily, we expect to usher in catalytic formulation, and the new growth curve will gradually become clear. We expect the company's net profit to be 0.32/0.4/0.52 billion yuan in 2024-2026, with a year-on-year growth rate of 28%/24%/30%, corresponding PE of 18/14/11 times, maintaining a “highly recommended” investment rating.

Risk warning: R&D progress falls short of expectations, risks such as safety and environmental protection, product commercialization, and geopolitics.