1H24 Revenue Meets Our Expectations, Profit Below Expectations

The company announced 1H24 results: revenue of 1.42 billion yuan, a year-on-year decrease of 20.4%, in line with our expectations; net profit to mother of 0.112 billion yuan, a year-on-year decrease of 39.3%; net profit after deducting 0.106 billion yuan, a year-on-year decrease of 39.0%. Profit was lower than our expectations, mainly due to fluctuations in the API business profit and the impact of formulation collection.

Development trends

The nuclear drugs sector remained stable, and gross margin increased further. In 1H24, the company's nuclear medicine sector revenue was 0.499 billion yuan, -0.58%; revenue for the second quarter was 0.267 billion yuan, +14.7% month-on-month; gross margin was 72.95%, up 1.99 percentage points year-on-year. According to company communication 1, as of August 2024, the company has put into operation 7 nuclear drug production centers mainly for single-photon drugs, 21 nuclear drug production centers with mainly positrons, 2 other operation centers, 8 nuclear drug production centers under construction, and the company has put into operation 30 production centers related to nuclear drugs. We believe that the company's existing nuclear drug products are expected to remain stable, and large-scale effects are expected to be further reflected.

API revenue improved month-on-month in the second quarter. In 1H24, the company's API segment revenue was 0.657 billion yuan, or -31.03%; of these, heparin raw materials revenue was 0.483 billion yuan, or -39.02% year-on-year, mainly due to lower export prices. In the second quarter of a single quarter, the API sector's revenue was 0.368 billion yuan, +27.1% month-on-month. In addition, 1H24's pharmaceutical division revenue was 0.179 billion yuan, a year-on-year decrease of 32.01%, mainly due to the impact of price reduction in natroparin calcium collection.

The nuclear drug pipeline is progressing smoothly, and it is expected that the harvest will be relayed. According to the company's announcement, the company's technetium [99mTc] tetrafine injection was approved for listing in July 2024. As of 1H24, the company's 18F-APN-1607 has completed phase III clinical observation and is in the data analysis and summary stage; fluorine [18F] serotide and fluorine [18F] alfaceptide are in phase III clinical research. The 177Lu-LNC1004 injection is undergoing phase I clinical trials in China and Singapore. We believe that the company's research and development of innovative nuclear drugs is progressing smoothly, and it is expected that the future will continue to enrich the company's product pipeline by relaying the listing.

Innovation pipeline

Profit forecasting and valuation

Considering the continuing impact of fluctuations in the heparin API business, we lowered the company's 2024/2025 EPS forecast by 23.4%/19.0% to 0.28 yuan/0.35 yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 43.1 times/33.7 times. We are optimistic about the company's future development of innovative nuclear drugs, and maintain an industry performance rating, switch to a 46.6 times P/E valuation in 2025, and lower the target price by 7.3% to 16.5 yuan, with 38.4% upward space from the current stock price.

risks

The risk of declining prices and demand for heparin APIs, the risk of price reduction in collection, and the risk of R&D failure.