Incident: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.91 billion yuan (yoy +6.44%), realized net profit of 0.137 billion yuan (yoy +28.23%), and deducted non-return net profit of 0.111 billion yuan (yoy +26.54%). Among them, 2024Q2 achieved operating income of 0.472 billion yuan (yoy +12.77%), net profit to mother 0.067 billion yuan (yoy +55.26%) in a single quarter, and net profit of 0.057 billion yuan (yoy +48.26%) after deducting non-return net profit of 0.057 billion yuan (yoy +48.26%).

Comment:

The cardiovascular business is growing at an impressive rate, with an increase in the share of high-profit varieties & the increase in net interest rates: ① On the revenue side, the company's 2024H1 revenue was 0.91 billion yuan (yoy +6%), of which industrial 24H1 revenue was 0.837 billion yuan (yoy +9%), medical business and other revenue was 0.046 billion yuan (yoy -27%). The decline in medical business and other revenue was mainly due to Chongqing Shino Panda no longer included in the scope of the merger in April 2024. Looking at the industrial segment, 24H1's cardiovascular drug business revenue was 0.238 billion yuan (yoy +38%, the impressive growth rate was mainly due to 24H1 Ezetimib tablet sales growth exceeding 110%, 24H1 Ezmeibu tablet revenue reaching 0.144 billion yuan), skeletal muscle medication business revenue of 0.193 billion yuan (yoy +4%), and respiratory medication business revenue of 0.146 billion yuan (yoy +12%), mainly due to revenue growth of powerful quercus cream (mikiren) 26%), pediatric drug business 0.094 billion yuan (yoy -4%), gynecological diseases business 0.043 billion yuan (yoy -8%), anti-infective drug business 0.033 billion yuan (yoy -25%). ② On the profit side, 24H1's net profit growth rate was much higher than the revenue growth rate. The main reason was that 24H1's gross margin increased by about 3.47 percentage points (24H1's comprehensive gross margin was 72.66%), which led to an increase in the company's overall net interest rate by 2.5 percentage points (24H1 company's net profit margin was 14.9%). The increase in the company's gross margin was mainly due to an increase in the share of high-margin varieties, which led to an improvement in overall gross margin. On the other hand, it was a decrease in marginal costs due to scale effects. Looking at the industrial segment, the gross margin of the 24H1 cardiovascular business was 80.55% (+4.51pp), the gross margin of the skeletal muscle drug business was 84.12% (-3.17pp), the gross margin of the respiratory medicine business was 76.27% (+2.4pp), the gross margin of the pediatric medication business was 70.04% (+7.89pp), and the gross margin of the gynecological disease business was 78.99% (-1.18pp), and the gross margin of the anti-infective drug business was 39.84% (+4.55pp).

The volume of the two major new drug types increased, and the R&D pipeline gradually reached the cash out period: ① The sales results of 2024H1's innovative traditional Chinese medicine Xuan Qi Jian bone tablets and children's Jingxing cough tablets were impressive. Among them, Xuanqijian bone tablets covered more than 300 public medical institutions (more than 900 public medical institutions were covered by the end of 24H1, including more than 500 grade hospitals), and sales revenue exceeded 50 million yuan (a year-on-year increase of more than 430%), and the new coverage of children's Jingxing cough tablets was added to more than 260 public medical institutions (24H1 was already covered at the end of 24H1) More than 1,500 public medical institutions, including more than 1,000 first-class hospitals), achieved sales revenue of about 45 million yuan (a year-on-year increase of more than 150%). ② In terms of R&D pipelines, as of 24H1, the last company's Noriton granules (blood nourishing, wind and pain relief granules) have completed long-term toxicity tests, and will take the opportunity to report after completing data preparation. The innovative traditional Chinese medicine drug research and development project pro-qi anti-tumor granules received the “Drug Clinical Trial Approval Notice” approved and issued by the Drug Administration, and the “Drug Supplement Application Approval Notice” approved and issued by the Drug Administration; the chemical ingredient indolebufen obtained the “Chemical Ingredient Marketing Application Approval Notice” approved and issued by the Drug Administration; indobufen tablets were declared for the marketing of Class 3 chemicals, and the “Notice of Acceptance” issued by the State Administration; edoxaban toluene sulfonate obtained the “Notice of Acceptance” issued by the CDE “Notice of Supplementary Information”, supplementary research has been completed.

Profit forecast and investment rating: We expect the company's 2024-2026 revenue to be 1.776 billion yuan, 2.064 billion yuan, and 2.402 billion yuan, respectively, with year-on-year growth rates of about 9%, 16%, and 16%, respectively, and realized net profit to mother of 0.258 billion yuan, 0.313 billion yuan, and 0.384 billion yuan, respectively, with year-on-year increases of about 38%, 21%, and 23%, respectively, corresponding to the current stock price PE, respectively. 16x, 13x We maintain a “buy” investment rating.

Risk factors: The decline in collection exceeded expectations, terminal development fell short of expectations, sales of new drugs fell short of expectations, R&D progress fell short of expectations, and the risk of rising raw material prices.