Key points of investment:

Strong performance, Q2 profit to mother increased by more than 55% year-on-year

H1 performance: The company's 24H1 achieved operating income of 0.91 billion yuan, a year-on-year increase of 6.4%; net profit to mother of 0.14 billion, an increase of 28.2%; realized net profit of 0.11 billion yuan without return to mother, an increase of 26.5% over the previous year.

Q2 single quarter results: The company achieved operating income of 0.47 billion yuan in 24Q2, an increase of 12.8% year on year; net profit to mother was 0.067 billion, up 55.3% year on year; net profit without return to mother was 0.057 billion yuan, up 48.3% year on year.

Innovative new Chinese medicine products lead strong performance

The industrial sector grew steadily, and the operating level continued to improve: 24H1's industrial sector achieved revenue of 0.84 billion, a year-on-year increase of 9.1%, and the gross profit margin of the sector was 76.2%, up 2.9 pct from 23H1; by sector: 1) Cardiovascular and cerebrovascular increased 37.6% year over year, mainly driven by methemib tablets; respiratory system increased 12.09% year over year, mainly driven by strong loquat paste; skeletal muscle increased 3.6% year on year. The amount of bone released by Xuan Qijian was relatively stable after harvesting garcinia cambogia; anti-infection declined 24.8% Oxime is pressurized; Key varieties showed impressive results: sales revenue of Xuanqijian bone tablets exceeded 50 million, up more than 430% year on year; sales revenue of children's Jingxing cough tablets was about 45 million, up more than 150% year on year; strong loquat paste (honey extract) increased 26% year on year, and garcinia yellow bone tablets achieved a year-on-year increase of nearly 5% in the context of collection; in terms of chemicals, sales revenue of Ezmeb tablets increased by more than 110% year on year, with sales volume of about 0.144 billion yuan.

Investment in innovation continues to increase, and medium- to long-term potential is sufficient.

The company continues to increase R&D investment. 24H1 has invested 0.061 billion in R&D, an increase of 65% over the previous year. The company currently has various R&D projects such as Class 1, Class 3, and Class 4 of traditional Chinese medicine. In the future, it will achieve common development in the three major fields of chemicals, traditional Chinese medicine, and biopharmaceuticals. Among them, the innovative traditional Chinese medicine Nonitong granules (blood nourishing, wind and pain relief granules) have completed long-term toxicity tests, waiting for the declaration to be implemented.

Profit forecasting and investment advice

We forecast the company's revenue for 2024/2025/2026 to be 1.829/2.115/2.439 billion yuan, respectively, with a growth rate of 12%/16%/15%. The company's net profit for 2024/2025/2026 was 0.241/0.293/0.353 billion yuan, respectively, and the growth rate was 29%/22%/20%, which remained unchanged. We are optimistic about the core competitive advantage of Fangsheng Pharmaceutical's new drug development capabilities and the multiple layout of the “338 Major Product Matrix” to maintain a “buy” rating.

Risk warning

The risk of product sales and promotion falling short of expectations, the risk that the price reduction of key product collections exceeds expectations, the risk of R&D failure or progress falling short of expectations, and the risk of raw material price fluctuations.