Incident: 1.24H1, the company achieved revenue of 3.554 billion yuan (-5.73%, same ratio below), realized net profit of 0.23 billion yuan (+2.74%), and realized net profit of 0.16 billion yuan (-9.75%) after deduction of non-return to mother. In 2.24Q2, the company achieved revenue of 1.702 billion yuan (-8.54%), realized net profit of 0.111 billion yuan (+19.98%), and realized net profit of 47.13 million yuan (-36.18%) after deducting non-return to mother. 24H1, due to the continuous optimization of the business structure and the decline in revenue from the injection business due to related policies, the company's apparent performance is under pressure.

The “777” brand made a major debut, and the integration of the torch continues to advance. The core variety is a record high: 24H1. The company officially launched a new “777” brand to establish “37 is 777” brand awareness and strengthen consumers' awareness of 37 saponins, the active ingredient in Hesetong softgels. By strengthening channel expansion and collaboration and enhancing product brand value, the product achieved rapid growth outside the hospital. 24H1, benefiting from brand building and pure sales efforts, the company's sales of Hesetong softgels reached a record high in the same period in recent years. Furthermore, on June 27, '24, the shareholders' meeting of the company decided to pass a bill to acquire 51% of China Resources Torch's shares held by China Resources 39, and without diluting the company's shares, to acquire 51% of the company's shares in cash. In the future, Shenghuo “King Liao” will focus on the hospital with its excellent academic ability and clinical evidence, and the “Luotai” dosage forms of Kunming Pharmaceutical will focus on the outside of the hospital to jointly write a new chapter in the development of the Yinfa Health Industry.

The “Kun TCM 1381” brand was reshaped, and the channel empowerment effect was remarkable. The core varieties grew rapidly: 24H1, the Kun TCM 1381 Division created an exclusive brand IP, Shenling Spleen and Stomach Granules appeared on Hunan TV, popular dramas, etc., and Shu Gan Granule launched a series of short films and large-scale pop-up events, etc., and the brand building was deeply rooted in the hearts of the people. In addition, in 24H1, the company completed the integration and construction of Kunming Pharmaceutical sales channels across the country, from multi-level channels to focusing on key mainstream customers; the sales performance of the Kunming Traditional Chinese Medicine series products was outstanding. Among them, the three core products of Shenling Spleen and Stomach Relief Granules, and Fragrance Flat Stomach Granules combined increased by more than 20% year-on-year.

Profit forecast and investment rating: Considering the decline in the performance of Hesetong injections, we expect the company's net profit to be 0.54/0.68/0.88 billion yuan in 24-26. The current market value corresponds to PE of 19/15/12x, maintaining a “buy” rating.

Risk warning: Collection renewal progress falls short of expectations, major industry policy changes, market competition increases risks, etc.