occurrences

In the first half of 2024, the company achieved operating income of 7.817 billion yuan, -13.64% year on year; net profit to mother 0.495 billion yuan, -12.51% year over year; net profit after deducting non-return to mother 0.47 billion yuan, -17.81% year over year.

Analytical reviews

High base affects apparent performance, cost structure optimization

The company's 2024Q2 revenue was 3.609 billion yuan, -21.94% YoY; net profit to mother was 0.248 billion yuan, -25.00% YoY; net profit after deducting non-attributable net income was 0.252 billion yuan, -24.49% YoY. Sales revenue declined in the first half of this year mainly due to factors such as high base figures for the same period last year and high social inventories of some products.

24 In the first half of the year, the company's overall gross margin was 46.71%, -3.44 percentage points year on year; sales expenses ratio was 31.66%, -3.82 percentage points year on year; management expenses ratio (including R&D expenses) was 5.77%, +0.85 percentage points year on year; financial expenses ratio was 0.76%, +0.09 percentage points year on year.

The digestive metabolic line is affected by the base and environment. Breathing remains steady, and healthy growth is remarkable

The pharmaceutical industry achieved sales revenue of 5.079 billion yuan, a year-on-year decrease of 19.77%, of which:

Digestive and metabolic drug business revenue was 1.585 billion yuan, down 26.34% year on year; gross margin was 59.65%, down 2.07 percentage points year on year, mainly due to the decline in sales of Agastache Zhengqi Oral Liquid. Possible reasons include a high sales performance base for the same period last year, relatively low temperatures in the southern region at the beginning of this year, and large inventory in the market.

The revenue from the respiratory medication business was 1.574 billion yuan, up 4.25% year on year; gross margin was 65.02%, up 5.16 percentage points year on year.

The pharmaceutical business achieved sales revenue of 3.741 billion yuan, a year-on-year decrease of 10.96%; the Chinese herbal medicine resource sector achieved sales revenue of 0.49 billion yuan, a year-on-year decrease of 16.39%; and the health sector achieved sales revenue of 0.265 billion yuan, an increase of 79.63% year-on-year.

Significant results in the first half of the year, and clear plans for the second half of the year

In the first half of the year, the company continued to deepen platform construction and advance scientific research projects. Currently, 56 projects are under development, covering key areas such as innovative drugs and classic formulations. It has completed pilot production and registration production process verification of Huagai disperse granules, and several products have entered into authoritative guidelines. In the first half of the year, the company obtained 2 consistency evaluation approvals, added 20 new authorized patents, and undertook 20 financial support projects at all levels. In terms of the marketing system, the market coverage rate of Agastache Zhengqi series products was promoted, and the OTC listing rate of emergency syrup and the coverage rate of primary hospitals were increased by 25% and 20%, respectively.

In the second half of the year, the company will accelerate open collaboration on scientific research platforms, promote secondary development of large varieties and potential products, strengthen scientific research to enable sales, and increase the introduction and cultivation of high-level scientific and technological talents. In terms of marketing, it will accelerate organizational evolution, optimize channel integration and terminal expansion, and improve the achievement of sales goals. The company will also continue to promote integration and innovation in the pharmaceutical business sector, expand the incremental market, and steadily improve performance. Chinese herbal medicine resources will strengthen base construction and resource control, and optimize the layout of the entire Chinese herbal medicine industry chain. The company will accelerate intelligent manufacturing and digital transformation, improve the level of production capacity construction and internal management, and ensure the achievement of business goals throughout the year.

Investment advice

According to the semi-annual report, considering the high social inventory of some of the company's products and short-term pressure on the company's performance, we lowered our previous profit forecast. The company's revenue for 2024-2026 is 15.65/17.46/19.33 billion yuan respectively (the forecast value before 2024-2025 is 21.55/26.04 billion yuan), up 0.2%/11.6%/10.7% year on year, respectively, and net profit due to mother is 0.94/1.24/1.6 billion yuan, respectively (2024~ The pre-2025 forecast is 1.35/1.89 billion yuan), with year-on-year increases of 14.6%/31.9%/28.6%, respectively, and the corresponding valuation is 14X/10X/8X. We maintain a “buy” investment rating.

Risk warning

Policy and regulatory risks; corporate governance reforms fall short of expectations; sales of core products fall short of expectations.