The decline in profits in the main business was compounded by losses in equity investment, and short-term performance was clearly under pressure. The company achieved revenue of 0.436 billion yuan in 2024H1, or -2.85% year-on-year, of which Q2 achieved revenue of 0.229 billion yuan, +10.97% month-on-month and +4.95% year-on-year, mainly benefiting from the release of production capacity and restoration of the downstream pig breeding boom.

2024H1 achieved net profit to mother -0.052 billion yuan, or -426.32% year-on-year. Among them, Q2 achieved net profit to mother -0.035 billion yuan, -116.23% month-on-month, and -3503.62% year-on-year. There are three main reasons for the decline in profit:

(1) The gross margin of the formulation declined in the current period; (2) the net income from the change in fair value decreased by about 50 million yuan year on year due to the decline in the share price of Tianbang Foods; (3) financial expenses increased by about 10 million yuan year on year after the conversion of the convertible bond raising project. After excluding non-recurring profit and loss, the company achieved net profit deducted from mother in 2024H1 - 0.024 billion yuan, or -448.27% year over year. Of these, Q2 achieved net profit deducted from non-return mother - 0.016 billion yuan, -93.35% month-on-month, and -713.85% year-on-year.

By product: Pharmaceutical profits are under pressure, and APIs are growing against the trend. Q2 The downstream pig breeding industry experienced a recovery, but demand for veterinary drugs was lagging behind, and customer price sensitivity was still high. The company's sales expansion of chemical formulations was blocked. 2024H1 revenue was -16.24% to 0.273 billion yuan, and gross margin fell 3.29pct to 24.17% year over year. The API business 2024H1 benefited from capacity release and process optimization to achieve contrarian growth. Among them, revenue was +56.69% to 0.112 billion yuan, and gross margin was 5.86%, or +5.86pct year-on-year.

The API process continues to improve, and the formulation product matrix is rich, which is expected to benefit from rising pig prices in the future. In terms of production capacity, the company's “1000 tons/year tylosin project” and “tylosin production line expansion project with an annual output of 1,000 tons and annual output of 600 tons of tylosin” have been fully put into operation. The fermentation level and process flow of the API project continued to be optimized during the reporting period, and production costs dropped significantly. In terms of products, the company has always focused on pig medicine. The new generation of animal-specific antimicrobials - tediloxin injection and third-generation oral cephalosporin “cefuroxime tablets” have all been successfully marketed and sold; the company's “Stable Blue Plus and Exemption” plan has remarkable effects in preventing blue ear disease. In the future, with the release of tylosin production capacity, cost and quality advantages may be further highlighted. Considering that the industry is currently cautious, we believe that the scissor gap between pig supply and demand is expected to widen further in the second half of the year, and that the pig farming industry is expected to maintain an upward trend. The company relies on a high-quality product portfolio and relatively stable customer relationships or direct benefits to the group to steadily release performance.

Risk warning: An uncontrollable outbreak occurred during the farming process, and the process optimization progress of the newly invested project fell short of expectations.

Investment advice: As a leading domestic veterinary drug formulation, most of the company's revenue comes from veterinary drugs for pigs. Subsequent performance is expected to recover with high elasticity, driven by a recovery in downstream animal protection demand and successive commissioning of new production capacity.

Considering the impact of Tianbang Foods' equity investment on immediate profit, we lowered the company's 2024 net profit forecast to 0.003 billion yuan (originally 0.07 billion yuan) and maintained the 2025-2026 net profit forecast of 0.16/0.08 billion yuan, corresponding to the current stock price PE of 544/9/18X, maintaining a “superior to the market” rating.