occurrences

On August 27, 2024, the company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.234 billion yuan (YoY -12.69%), net profit attributable to mother of 0.005 billion yuan (YoY -129.30%), deducting non-net profit of 0.005 billion yuan (YoY -138.00%).

viewpoints

Q2 Performance was slightly lower than market expectations, putting pressure on the profit side. By product, 2024H1's initial material sales revenue was 0.047 billion yuan, gross margin was -6.39%, intermediate sales revenue was 0.183 billion yuan, and gross margin was 23.18%. Looking at a single quarter, the company achieved revenue of 0.112 billion yuan (YoY -24.80%), net profit to mother of 8.6659 million yuan (YoY -164.44%), deducted non-net profit of 8.3914 million yuan (YoY -165.30%), gross margin of 12.80%, -11.26pct, month-on-month -8.77pct, net margin of -8.76%, year-on-month. 2024Q2 We believe that the main reasons for the pressure on the profit side of Q2 are: ① the price increase of upstream phytosterol and process optimization of some products affected the company's gross profit margin; ② the cost ratio increased significantly year-on-year, with the cost rate of 27.11% (YOY+10.71pct) during the 2024Q2 period. Among them, employee remuneration, safety and environmental protection investment and depreciation increased the management fee ratio to 12.23% (YOY+4.93pct), and increased bank loans and reduced interest income, which raised the financial expense ratio to 3.79% (YOY+2.81pct).

The product has been extended to APIs, and global registrations will be submitted one after another in the second half of the year. The subsidiary Huahai Joint has stocked 13 API products, including testosterone, didrogesterone, ursodeoxycholic acid, fluvir, and exemestane. It is expected that starting from H2 in 2024, product registration declarations will be submitted simultaneously in China, the United States, Europe, etc., and some products will be sold in 2025. In terms of production capacity, by the end of June 2024, the first phase of the product construction project was basically completed, and a second phase product production line was added to continuously enrich the API production line and products.

Production capacity is about to be launched on a large scale to help revenue grow rapidly. At the end of June 2024, the total scale of the company's projects under construction was 1.057 billion yuan, and the total fixed assets were 0.518 billion yuan, an increase of 0.315 billion yuan compared to the end of March 2024. New products began to be launched one after another. It is expected that the fund-raising project “Progesterone and Intermediate BA Production and Construction Project” will be officially put into operation at 2024H2, and Huahai Joint Pharmaceutical Phase I will achieve large-scale production in 2025. In addition, some industrial chain upgrading projects are expected to be successfully put into operation and achieve profits in 2024H2.

Investment advice

Prices of the company's initial material products began to rise in Q1. At the same time, fund-raising projects and industrial chain upgrading projects are also expected to be put into operation and achieve profits this year. The company's revenue for 2024/25/26 is 0.862/1.269/1.675 billion yuan, and net profit to the mother is 0.015/0.07/0.101 billion yuan, corresponding to the current PE of 118/25/17X, and continues to be given an “increase in holdings” rating.

Risk warning

Industry policy risk; market competition increases risk; production capacity investment falls short of expectations; risk of product development failure; risk of falling product prices.