Incident: On August 23, 2024, the company released its 2024 semi-annual report. During the reporting period, it achieved operating income of 1.95 billion yuan, a year-on-year decrease of 11.36%; realized net profit attributable to shareholders of the parent company of 0.119 billion yuan, a year-on-year decrease of 42.75%; and realized net profit without deduction of 0.117 billion yuan, a year-on-year decrease of 41.60%. 2024Q2 achieved operating income of 0.982 billion yuan, a year-on-year decrease of 8.33%; realized net profit of 0.049 billion yuan, a year-on-year decrease of 59.57%; and realized net profit without deduction of 0.052 billion yuan, a year-on-year decrease of 55.38%.

R&D investment increased, and gross margin decreased slightly: 2024H1. The company's sales/management/R&D/finance expenses ratio was 34.84%/5.60%/9.11%/0.05%, respectively, of which R&D investment increased by 12.21% over the same period last year. The company's continued increase in R&D investment has led to a significant increase in R&D expenses, and financial expenses have increased due to the increase in bank loans. The overall gross margin of the 2024H1 company was 58.30%, down 8.1 pcts from the same period last year, due to the increase in the production costs of the company's anti-infective products.

Innovation drives development, and product development is progressing steadily. The NDA application for hydroxysafflower yellow A was accepted by the CDE. The potential population for stroke is large, and it is expected to become a major single product. Phase III clinical trials of “Compound Ginkgo Biloba” and “Zihuawen Lung Cough Relief Granules” have been completed and have entered the NDA review phase. The first low-interfering nucleic acid drug YKYY015 injection project independently developed by the company has been approved by the US IND and accepted by the Chinese IND.

Profit forecasting and investment advice. The company has many innovative products, which are expected to drive a new round of development. We expect the company to achieve net profit of 0.301, 0.381, and 0.459 billion yuan respectively in 2024-2026, corresponding to P/E valuations of 28.3, 22.3, and 18.5 times, respectively. Maintain a “buy” rating.

Risk warning: product development risk; market competition increases risk; risk of product sales falling short of expectations; related policy risks.