Event: The company's 2024H1 revenue -24.69%, net profit to mother -36.19%. In the first half of 2024, the company achieved operating income of 0.401 billion yuan (-24.69%), net profit of 0.153 billion yuan (YoY -36.19%); achieved revenue of 0.196 billion yuan (YoY -22.49%) in the second quarter, and net profit to mother 0.065 billion yuan (-36.91% YoY).

The sales volume and price of the company's Q2 products are still under pressure. Pig prices have been rising rapidly since June, and it will take some time to spread to the increase in demand for downstream animal protection products. As a result, the 2024Q2 industry sales slowed slightly, but the pressure is still showing.

2024Q1/Q2, foot-and-mouth disease batch issuance data was -4.3%/+56.9%, pseudo-rabies -43.7%/-36.3%, and circle -17.6%/-7.0%. The sales volume and price of the company's products were all under pressure. 2024H1 achieved sales revenue of 0.351 billion yuan for swine vaccines (segment), accounting for 91.8% of revenue; 2024H1 achieved gross profit margin of 63.24%, -10.34pct, Q2 gross margin of 59.67%; net profit margin 38.01%, year-on-year -6.92 pct, Q2 net margin of 33.32%.

The company continues to develop new products and has potential for long-term growth. The company continued to invest in R&D. 2024H1 invested 40.3594 million yuan in R&D expenses, accounting for 10.06% of revenue. It obtained a total of 4 new veterinary drug registration certificates, including the national class 1 new drug, the inactivated porcine coronavirus vaccine (CHN-HN-2014 strain), porcine circovirus type 2 recombinant dried virus, and Mycoplasma pneumoniae double inactivated vaccine (KQ strain+XJ03 strain).

As of 2024H1, the company's porcine gastro-abdominal-delta coronavirus triple inactivated vaccine has completed review tests; the swine fever and swine pseudorabies double active vaccines are being reviewed and tested; the swine fever and swine pseudorabies vaccines are in the preliminary investigation stage and are progressing smoothly.

Investment advice: Since 2024Q3, pig prices have entered an upward cycle, breeding companies have maintained high breeding profits, and demand for animal protection products and gross margin levels are expected to gradually rise. The company adheres to innovation leadership and has abundant research reserves, which is expected to further open up the company's future growth space. We expect the company to achieve operating income of 1.079/1.261/1.528 billion yuan in 2024-2026, net profit to mother of 0.396/0.472/0.568 billion yuan, and PE corresponding to the closing price on August 29 is 14.8/12.4/10.3 times, respectively, maintaining the “gain” rating.

Risk warning: New product promotion falls short of expected risk; market competition increases risk; risk of cooperative research and development; risk of livestock and poultry prices falling short of expectations.