Key points of investment

The company's performance significantly exceeded expectations. With 2024H1, the company achieved revenue of 0.831 billion yuan (YoY +107.47%) and net profit of 0.227 billion yuan (YoY +442.77%); in a single quarter of Q2, the company achieved revenue of 0.476 billion yuan (YoY +146.82%) and net profit to mother of 0.161 billion yuan (YoY +671.78%). During the reporting period, the company's gross margin was 67.32%, up 9.73 pct year on year; net profit was 27.87%, up 17.93 pct year on year; looking at the cost ratio for the period, the company's sales, management and financial expenses ratio were 3.45%, 15.71%, and 0.61%, respectively, down 4.50, 6.64, and 0.33 pct year on year; R&D expenses rate was 13.53%, up 3.58 pct year on year. The scale effect of the company was obvious, the proportion of high-margin products increased, and the performance significantly exceeded expectations.

Independent product selection and customization categories have all achieved rapid growth. 1) Independent product selection: Rapid release of peptide APIs: 2024H1, the company's independent selection of products achieved revenue of 0.545 billion yuan, a year-on-year increase of 119.76%, and gross margin of 70.85%; of these, APIs and intermediates achieved revenue of 0.377 billion yuan, gross margin of 77.36%; formulation achieved revenue of 0.168 billion yuan, gross margin of 56.19%.

It is expected to be mainly due to the continued rapid release of peptide products. Currently, the company has a large production capacity of 10 kg or more in a single batch in the field of peptides. Production costs have been greatly reduced, and it is at the leading level in the industry. 2) Customized category: capacity release+project promotion, business chain extended to high value-added back-end. 2024H1, the company's customized products and services achieved revenue of 0.286 billion yuan, an increase of 88.16% over the previous year. During the reporting period, the company developed and undertook a number of CDMO innovative drug API projects. With the gradual release of Phase II GMP production capacity, the business chain will steadily continue to the backend with higher stickiness and added value. The company signed a long-term CDMO supply contract with a large European pharmaceutical company with a total amount of 0.102 billion US dollars. Delivery began in Q2 of this year. It is expected that the pace of delivery will accelerate from the second half of the year.

The self-development pipeline continues to be rich, and many products have made positive progress. During the reporting period, the company obtained marketing approval for cetrorelix acetate, epastat, and agomelatine APIs in China. The single batch production of many long-chain modified peptide drugs such as simeglutide has exceeded 10 kg, and the yield and quality are at the advanced level of the industry. In terms of formulation, based on the strength of the oseltamivir phosphate capsule formulation market, oseltamivir phosphate granules have obtained marketing approval in China, and oseltamivir phosphate suspension is also in the CDE technical review. It is expected that full coverage of oseltamvir dosage forms will be achieved within the year, further enhancing the company's core competitiveness in the field of antiviral drugs. During the reporting period, the company obtained the world's first US FDA DMF for tiverpotide APIs.

Production capacity has been released one after another, and production capacity has been guaranteed. In terms of production capacity layout: 1) The new 601 peptide workshop was capped ahead of schedule. It is expected that installation and commissioning will be completed within the year to achieve peptide production capacity of 5 tons/year; the new 602 peptide workshop is expected to complete construction, installation and commissioning in 2025H1, and will release another 5 tons/year of peptide production capacity; 2) Launch large-scale peptide and technological upgrading projects to add higher tonnage peptide high-quality production capacity; 3) The new formulation factory's oral solid formulation workshop hard capsule production line will pass the pharmaceutical GMP compliance test in July to achieve phosphotophosphate Annual production capacity of 4.5 billion tablets of formulations such as Wei capsules . 4) The second phase of the new formulation plant construction project was launched, which will increase the company's production capacity for injections and freeze-dried powder injections; 5) Forward-looking layout and development of oligonucleotide production capacity. The project progressed smoothly, and the 705 workshop was capped. The company's production capacity has been released one after another to guarantee the supply of orders, and the performance is expected to maintain rapid growth.

The BD team launched a matrix-like attack, and the global business continued to advance. During the reporting period, the company expanded its business in many regions around the world: 1) European market, cooperating with leading generic drug companies for oral use of simeglutide and tirpopeptide APIs; 2) North American market, reaching Liraglutide formulation API cooperation in the US market and expanding the first innovative animal peptide CDMO project; 3) South American market, signing strategic cooperation agreements for simeglutide formulations, and reaching cooperation with leading generic drug companies to market the first imitation of liraglutide preparations; 4) The Indian market and signed global market ingredient cooperation for liraglutide preparations and promote multiple oligonucleotide CDMO services; 5) In the domestic market, strategic cooperation was reached on GLP-1 innovative drug raw materials and formulations.

Investment advice: The company's interim performance significantly exceeded expectations, benefiting from the rapid development of peptide industries such as GLP-1 and the continuous expansion of the company's competitive advantage. We expect the company's performance to maintain a rapid growth trend and appropriately raise the company's profit forecast for 2024-2026. The company's net profit for 2024-2026 is 4.12/5.61/7.16 (original forecast: 2.26/3.05/3.99) billion yuan, respectively. The corresponding EPS was 1.88/2.55/3.26 (original forecast: 1.06/1.43/1.87) Yuan, corresponding PE was 31.8/23.4/18.3 times, respectively. Maintain a “buy” rating.

Risk warning: market competition risk, exchange rate fluctuation risk, R&D risk, risk of price reduction exceeding expectations, etc.