Results for the first half of the year were under pressure, and there were improvements on the cost side. The company released its 2024 mid-year report. 24H1 achieved operating income of 0.6 billion yuan (-8.61% YoY), net profit attributable to mother of 0.142 billion yuan (+21.25% YoY), and net profit of 0.109 billion yuan (YoY +3.07%) after deducting non-return net profit of 0.109 billion yuan (YoY +3.07%). Performance pressure for the first half of the year was mainly due to: 1) VD3 prices remained low in the first half of the year; 2) the pharmaceutical sector experienced a year-on-year decline in revenue due to procurement renewal. Expense side: sales expenses 0.107 billion yuan (YoY -32.81%), management expenses 0.053 billion yuan (YoY -28.12%), R&D expenses 0.041 billion yuan (-3.28% YoY);

VD3 prices are picking up, and the company's performance is expected to improve in the second half of the year. The price of 24Q1 feed-grade vitamin D3 is still at a historically low level. Continued low prices caused some companies to cut production and stop production due to losses, and supply was reduced. As downstream companies' profit levels improved and demand improved, the price of feed-grade vitamin D3 began to rise at the end of the second quarter. According to the EDB database, the average price of vitamin D3 has risen from 56.5 yuan/kg in April to 251.25 yuan/kg in August, and has maintained an upward trend. It is expected that with the recovery of VD3 prices, the company's performance in the second half of the year will improve;

The “one vertical, one horizontal” strategy is progressing in an orderly manner, and it is expected that it will continue to contribute more. The company continues to “vertically” develop downstream applications of vitamin D3, and calciferol raw materials and formulation projects are progressing in an orderly manner; other vitamin products are being expanded “horizontally”, and new production capacity such as VA, VB6, VE, and biotin will be put into production one after another in recent years. The pharmaceutical sector is steadily advancing the development of new products, and 24H1 has obtained new drug registration approvals for amlodipine atorvastatin calcium tablets and roxithromycin tablets. The development of the company's new business and the expansion of the new drug cluster are expected to continue to contribute to the company's performance growth.

According to the 24-year report, we lowered revenue and expenses in the cholesterol and lanolin derivatives and pharmaceuticals sector. Considering the rise in VD3 prices and the subsequent production capacity of other varieties, and increasing the revenue from vitamin D3 and D3 analogues and other business segments, we forecast that the company's earnings per share for 2024-2026 will be 0.67/0.87/1.03 yuan, respectively (the original 2024-2025 forecast was 0.54/0.63 yuan). According to comparable companies, we gave the company a price-earnings ratio of 20 times in 2024, with a corresponding target price of 13.40 yuan. Maintain an “Overweight” rating.

Risk warning

The risk of vitamin D3 price fluctuations, the risk that the company's production capacity release falls short of expectations, the risk of centralized drug procurement price reduction, and the risk of not being selected.