1H24 revenue and net profit to mother declined year-on-year

The company announced 1H24 operating income, net profit to mother, deducted non-net profit of 0.036/0.025/ -0.021 billion yuan (-76%/-136% yoy), including 2Q24 operating income, net profit attributable to mother, and 1.3/-11.31/-35.49 million yuan (-73%/-249% yoy). In view of the concentrated sales of influenza vaccines at the end of the year, we will not adjust the profit forecast. We expect a net profit of 1.07/1.34/1.68 billion yuan (+25/25/ 25% yoy) for 2024-26, and a PE valuation of 16x in 2024 (comparable company Wind agreed to expect a large PE variance, reference median 16x), and a target price of 28.55 yuan to maintain “purchase.”

The performance in the first half of the year was unpredictable. The normal influenza vaccine was concentrated in the fourth quarter

The year-on-year decline in revenue and profit was mainly due to the influenza outbreak in the spring of 1Q23, and some vaccines that had already been reduced were returned to confirmed revenue due to pure sales repayments. We think it is normal for influenza vaccines to be low in the first half of the year (revenue for 2021 and the first half of 2023 accounts for 0.6% and 6.2% for the whole year, respectively). It is expected that influenza vaccine sales will return to normal in 2024, especially in the second half of the year.

The industry supply pattern is expected to improve in 2024. The company's reasonable production schedule and stable supply are expected to increase steadily year-on-year in 2024 (sales volume exceeds 19 million in 2023). Considering price cuts (the quadrivalent precharge specification for adults was adjusted from 128 yuan to 88 yuan in June), annual revenue is expected to decline: 1) The overall vaccination rate of the Chinese influenza vaccine from 2022 to 2023 is ~ 3%. Compared with the US (~ 50%), there is still a lot of room for improvement; 2) The company's influenza vaccine production capacity and market share are leading the industry. The 1H24 influenza vaccine batch issued 66 batches, including 60 batches of the quadrivalent influenza vaccine; 3) On the supply side, Sanofi has confirmed that supply to China will be suspended due to falling efficacy. Demand-side product price reductions and liberalization of vaccine prescriptions from public health doctors are expected to increase vaccination rates. We believe that supply and demand in the industry are expected to be more balanced in 2024, and the company's influenza vaccine production and sales rate is expected to increase markedly.

The research pipeline continues to advance

1) The Vero vaccine (2M23 approved) has less DNA residue and is safer, has both 4- and 5-dose methods. The tetanus vaccine (2M23 approved) has better detoxification and immunogenicity, and is expected to grow collaboratively through product quality, pricing systems, and blood product sales resources; 2) We expect MeNAc to report production in 2025, and dTACP to launch phase III clinical trials on 2H24. In addition, the company promotes preclinical development of freeze-dried Hib, recombinant vesicles, influenza virus mRNA vaccines, and RSV mRNA vaccines; 3) Equity incentives with a non-profit target value of 0.82/1.05/1.17 billion yuan and a trigger value of 0.77/0.96/1.05 billion yuan from 2023 to 2025.

Risk warning: The consumption environment is weaker than expected, and residents' willingness to get vaccinated is weaker than expected.