1H24 performance exceeded our expectations

The company announced 1H24 annual results: revenue of 6.506 billion yuan, up 44.2% year on year; net profit to mother of 2.726 billion yuan, up 111.5% year on year. The performance was higher than our expectations, mainly due to the product's external licensing down payment.

Development trends

The share of innovative drug revenue continues to rise. In 1H24, the company's revenue for innovative drugs and cooperative products was 5.032 billion yuan, up 80.6% year on year, accounting for 77.4% (+15.6pct YoY). Of these, revenue from cooperative products was about 1.3 billion yuan, mainly down payment authorized by B7H3 ADC to GSK. Excluding this down payment, the company's revenue was about 5.2 billion yuan, an increase of about 15% over the previous year. By sector: 1) Anti-tumor business revenue of 4.475 billion yuan (+75.2% YoY). We expect Amelot 1H24 to maintain 20% year-on-year growth; 2) anti-infection business revenue of 0.701 billion yuan (+16.8% YoY), central nervous system business revenue 0.73 billion yuan (+4.6% YoY), and other business revenue 0.597 billion yuan. 1H24 sales expenses 1.72 billion yuan (+3.1% YoY), management expenses 0.35 billion yuan (+3.1% YoY), R&D expenses 1.2 billion yuan (+28.7% YoY).

The R&D pipeline is progressing rapidly. The company's core product, Amelox-adjuvant treatment of NSCLC and two additional NDAs for maintenance treatment of patients with stage III irrelevant NSCLC after simultaneous radiotherapy, have been accepted; the company's GLP-1/GIP dual target has announced positive phase IIa results, and we expect it to launch phase III clinical trials on 2H24. In terms of early projects, the company has 4 key innovative drugs approved for clinical use, namely HS-10501 (type 2 diabetes and adult obesity), HS-10398 (immunoglobulin A nephropathy and membranous nephropathy), HS-10504 (advanced NSCLC), and HS-20137 (psoriasis). In terms of external cooperation, in 2024, the company and Pumis will expand cooperation on EGFRxCMET dual antibodies and introduce Quanxin Biotech HS-20137 and Lupeng Biotech LP-168 (bTKI) benefits for non-tumor indications in Greater China.

Focus on the further release of innovative drugs in 2024 and the readout of early clinical pipeline data. The company's 7 innovative drugs approved in '23 have all been included in the national health insurance catalogue, and the company expects innovative drugs to account for more than 70% of revenue in '24. We believe that after maintaining the current commercialization team for 24 years, the company is expected to continue to improve per capita efficiency. The company has a rich pipeline of innovative drugs to support continued revenue growth in the future. Indications for core products in the tumor sector are still in the expansion stage. GLP-1/GIP dual targets are about to start phase III. At the same time, central nervous system and metabolic pipeline products are being actively promoted. It is recommended to focus on reading clinical data.

Profit forecasting and valuation

Due to the increased performance of the cooperative down payment, we raised our 24-year profit forecast by 30.5% to 4.472 billion yuan, and the 25-year profit forecast by 17.8% to 4.19 billion yuan. The current stock price corresponds to 21.8 times/22.6 times 2024/2025 P/E. Maintaining an outperforming industry rating, based on the SOTP method, we raised our target price by 18.6% to HK$21.12, corresponding 25.3 times/27.0 times 2024/2025 P/E (15.9% space), taking into account the increase in profit forecasts and temporary pressure on the company's generic drug sector.

risks

Product commercialization falls short of expectations; competitive landscape intensifies; clinical data falls short of expectations.