Incident: 24H1 achieved revenue of 2.764 billion yuan (-15.07%), net profit due to mother of 0.475 billion yuan (-23.60%), net profit of 0.468 billion yuan (-23.64%); single Q2 realized revenue of 1.289 billion yuan (-14.29%), net profit to mother 0.238 billion yuan (-30.14%), net profit of non-return to mother was 0.234 billion yuan (-30.90%).

Project reserves are growing steadily, and new businesses such as formulations, peptides, and conjugations are expected to drive the second growth curve: 2024H1 CDMO revenue is 1.971 billion yuan (-20.61%). We speculate that on the one hand, pet drug CDMO has decreased revenue due to the impact of terminal market inventory; on the other hand, terminal sales of a small number of drugs have fallen short of expectations. Despite short-term pressure on sector performance, we saw that the CDMO API pipeline continued to grow steadily. As of the 2024H1 CDMO CDMO project pipeline, the number of clinical phase I&II/clinical phase III and commercialization projects respectively increased by 86/7/2 compared to the end of 2023. Furthermore, the CDMO formulation business grew rapidly, and the number of CDMO projects for 2024H1 formulations increased 32% year-on-year, and the revenue scale also increased by more than 50%.

At the same time, with the establishment of the TIDES division, the peptide and conjugation business volume has been rising steadily, and the future can be expected.

The API business is expected to bottom up: 2024H1 API business revenue was 0.732 billion yuan (+5.5%), and the API business gradually bottomed out; gross margin was 21.19%, down 10.93 pct year on year. We speculate that the main anti-infection business is being dragged down by price competition. In the long run, we believe that as the company's new APIs are launched one after another, it is expected to make up for the fluctuations caused by some traditional varieties.

Investment advice: The company adheres to an integrated layout at home and abroad, while actively developing new businesses such as pharmaceuticals. We expect the company to achieve operating income of 5.739/6.257/6.988 billion yuan and net profit of 1.043/1.135/1.291 billion yuan in 2024-2026. The corresponding PE was 10.57/9.72/8.54 times, respectively, maintaining the “gain” rating for the company.

Risk warning: Risks that innovative drug sales of services fall short of expectations, risks of global operations and changes in international policies, increased risk of market competition, etc.