1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 1.366 billion yuan, up 12.19% year on year; net profit to mother was 0.284 billion yuan, up 43.77% year on year, and the results were in line with expectations.

Development trends

Loxoprofen sodium gel patches are basically converted into price for volume. According to the company's announcement, on a quarterly basis, 1Q24/2Q24 companies achieved revenue of 0.591 billion/0.775 billion yuan respectively, an increase of 17.7/ 8.3% over the previous year. By product, 1H24 pharmaceutical preparations achieved revenue of 1.086 billion yuan, an increase of 7.5% over the previous year; revenue from raw materials was 0.256 billion yuan, an increase of 26.08% over the previous year. Among them, the company's core product, loxoprofen sodium gel patch 1H24, achieved sales of 0.686 billion yuan. Affected by the gradual expansion of the scope of procurement licensing, revenue decreased by 1.85% year on year, but overall sales volume increased by 40.81% year on year. Among them, sales volume outside the hospital market was 0.106 billion yuan, an increase of 330% year on year. 1H24 ketoprofen gel patch achieved sales of 21.68 million yuan. Other formulations achieved sales of 0.378 billion yuan, a year-on-year increase of 21.60%. We continue to be optimistic about the future release potential of loxoprofen sodium gel patches and ketoprofen gel patches.

The sales expense ratio has improved dramatically, driving the company's net interest rate to continue to rise. According to the company's announcement, 1H24's sales expenses rate reached 39.98%, down 7.93 percentage points from the same period last year. The main factors are: 1) loxoprofen sodium gel patch began to reduce some sales expenses in the collection area; 2) the company's marketing model transformation and commercial consolidation improved sales efficiency; 3) the sales volume of loxoprofen sodium gel patch in the outside hospital market increased further. In addition, 1H24's management expenses ratio was 2.99%, down 0.61 percentage points year on year, and R&D expenses ratio was 8.35%, up 0.87 percentage points year on year. Considering that the company's current sales expense ratio optimization strategy will continue to be implemented, we believe that there is still room for optimization of the company's expenses.

The company has a rich research pipeline to create a full line of topical anti-inflammatory and analgesic products. According to the company's announcement, in addition to loxoprofen sodium gel patch and ketoprofen gel patch, the company has more than 15 products under development. As of 1H24, the company has submitted marketing applications for 4 products, including indomethacin gel patch, lidocaine gel patch, and riprodicaine cream. We expect these products to be launched one after another in the next 2-3 years, and work together to build the company's full line of topical patches.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 20.9x/17.4x. Maintaining an outperforming industry rating, considering the downward shift in the overall valuation center of the A-share pharmaceutical sector, we lowered our target price by 9.4% to 29.00 yuan, which corresponds to 27.4 times the 2024 price-earnings ratio and 22.8 times the 2025 price-earnings ratio, with 31.5% upside compared to the current one.

risks

The competitive landscape intensified, sales fell short of expectations, and R&D progress fell short of expectations.