Incident: The company released its 24-year semi-annual report. The company 24H1 achieved revenue of 2.138 billion yuan (+0.93%), net profit to mother of 0.34 billion yuan (+12.56%) and 0.331 billion yuan (+11.78%); the company 24Q2 achieved revenue of 1.1 billion yuan (-5.25%), net profit and 0.186 billion yuan (+ 11.80%) of net profit and 0.186 billion yuan (+ 13.35%).

The API business is under pressure, and the formulation business is growing rapidly: Faced with severe and complex domestic and foreign market environments and various uncertainties, 24H1's performance is still stable. The profit growth rate is higher than the revenue growth rate, mainly due to high-margin formulation business growth. APIs optimize cost competitiveness. The gross margin increased to 54.84% (+3.16pct), and the net margin reached 16.26% (+2.05pct). By business, the pharmaceutical business revenue was 1.215 billion yuan (+10.6%), of which by treatment field, gynecological family planning was 0.233 billion yuan (-1%); anesthetic muscle relaxation was 0.063 billion yuan (+28%); respiratory 0.393 billion yuan (+30%); dermatology 0.12 billion yuan (+26%); and general medicine 0.3 billion yuan (-6%). The API and intermediates business revenue of 0.91 billion yuan (-9%) was mainly affected by the high price base for the same period last year, increased market competition, overseas economic environment, and inventory removal from downstream customers. Among them, self-operated 0.489 billion yuan (-1.2%), Italian subsidiary 0.297 billion yuan (-15%), and Xianyao 0.11 billion yuan.

New pharmaceutical products have gradually formed growth potential, and the high-end market for APIs can be expected to expand: in the formulation business, the impact of collection has been gradually overcome, and new products such as norethisterone enanthate injections, drospirenone ethinyl estradiol tablets, and sodium sulugene glucose have gradually formed new growth potential. At the same time, the company is developing rich products, such as didroprogesterone tablets, estradiol valerate tablets, omexone sodium, etc. In the future, as new products gradually accumulate and the sales system and channel adjustments and superposition are completed, the formulation business is expected to grow rapidly. In terms of API business, 2024H1's sterile drug of medroxyprogesterone acetate has passed WHO PQ certification, prednisolone has passed Japanese PMDA certification, and prednisolone tablets have been approved by the US FDA, laying the foundation for expanding the high-end market.

Investment proposal: We expect the company to achieve operating income of 4.515/5.305/6.213 billion yuan and net profit to mother of 0.672/0.819/0.979 billion yuan in 2024-2026. The corresponding PE was 16.70/13.70/11.47 times, respectively, maintaining the “gain” rating.

Risk warning: New product sales and development fall short of expectations; high-end API market expansion falls short of expectations; API price fluctuation risk, etc.