Incident: The company released its 2024 mid-year report. In the first half of 2024, the company achieved operating income of 0.563 billion yuan, an increase of 22.08%; net profit to mother was 0.149 billion yuan, an increase of 25.91% year on year; net profit after deducting non-return to mother was 0.143 billion yuan, an increase of 24.49% year on year.

The main business is growing rapidly, and the per capita yield continues to rise. On a quarterly basis, 2024Q2 revenue was 0.311 billion yuan (+35.86% YoY), or 75.82 million yuan (+8.22%) after deducting non-76.35 million yuan (+12.57%). We expect the company's main business to continue to grow rapidly, mainly due to the company's adherence to an integrated pre-clinical and clinical integrated service model, in-depth layout in the special formulation business, gradually realizing diversified development models, and continuously improving R&D service capabilities, winning high recognition from customers, and promoting steady growth in market orders. In terms of profitability, the company's overall gross profit margin for the first half of 2024 was 55.99% (-0.94pp), and the net profit margin was 25.11% (-0.77pp). 2024H1 sales expense ratio 3.10% (+0.53pp), management expense ratio 8.69% (-2.32pp). Finance rate 0.84% (+0.38pp), R&D expense ratio 12.28% (+0.71pp). In terms of human efficiency, the per capita output in the first half of 2024 reached 0.4073 million yuan, an increase of 0.0083 million yuan per capita over the same period last year.

Multi-wheel drive, self-developed varieties such as pharmaceutical research+clinical trials and bioanalytical services continue to be developed. 1) Pharmaceutical research services: 2024H1 revenue rose to 0.343 billion yuan (+8.29%), sector personnel increased to 1,023 (+20.07%), further enhancing the company's service capabilities; 2) Clinical trials, bioanalysis and pharmacological efficacy services: 2024H1 revenue of 0.217 billion yuan (+50.28%), and sector personnel rose to 371 (+11.41%). We expect this is mainly due to the gradual extension of pre-clinical projects to the back-end; 3) Self-developed variety development and equity sharing: In the first half of 2024, the company obtained a total of 5 equity sharing projects to obtain production approval, and the equity share achieved operating income of 3.3391 million yuan. In addition, of the company's participation in R&D and independent research and development projects, a total of 8 new drug projects have passed NMPA approval to enter clinical trials, 70 drug applications have been accepted for marketing registration, and 8 consistency evaluation registrations have been accepted; 39 drug production registration approvals have been obtained; 7 have passed the consistency evaluation; and 6 APIs have passed the review and approval. We expect that as the self-developed variety project continues to advance, the project transformation is expected to continue to reap benefits.

Profit forecast and valuation: Considering the continued steady growth of the company's orders, we expect the company's 2024-2026 revenue to be 1.198 billion yuan, 1.493 billion yuan, and 1.879 billion yuan (1.229 billion yuan and 1.577 billion yuan before the 2024-2025 adjustment), respectively, with growth rates of 28.51%, 24.63%, and 25.85% respectively; net profit to mother is 0.241 billion yuan and 0.303 billion yuan respectively The growth rates of billion yuan and 0.397 billion yuan (0.304 billion yuan and 0.41 billion yuan before the 2024-2025 adjustment) were 30.31%, 25.98%, and 30.89%, respectively. Considering the steady growth rate of the company's orders, self-development transformation is expected to bring a second growth curve and maintain a “buy” rating.

Risk warning events: The public data used in the research report may have the risk of information being delayed or not updated in a timely manner, the risk of production capacity growth falling short of expectations, the risk of uncertain transfer of innovative drug R&D projects, the risk of declining gross margin, the risk of rising raw material supply and prices, and environmental protection and production safety risks.