Key points of investment:

The company's 24H1 net profit loss to mother narrowed by 73.22%. The company achieved revenue of 0.303 billion yuan in the first half of 2024, an increase of 1071.20% year on year; if the impact of estimated COVID-19 vaccine returns for the same period of the year was excluded, operating income increased 15.36% year on year; net profit to mother was 0.225 billion yuan, a year-on-year decrease of 73.22%. The main reason for the increase in the company's revenue was the continuous promotion and market introduction of influenza vaccine products during the reporting period, while CDMO and other service efforts were increased. With 2024Q2, the company achieved operating income of 0.189 billion yuan, an increase of 353.40% year on year; net profit to mother was 0.055 billion yuan, and losses narrowed by 92.12% year on year.

Controlling company expenses and improving overall operating efficiency. 24H1, the company's sales expenses were 0.112 billion yuan (YoY -12.70%), sales expense ratio 37.07%; management expenses 0.084 billion yuan (YoY -38.45%), management expense ratio 27.52%; R&D expenses 0.186 billion yuan (YoY -45.06%), R&D expenses rate 61.27%.

In 24Q2, the company's sales expenses were 0.066 billion yuan (-10.79% YoY), sales expense ratio 34.84%; management expenses were 0.046 billion yuan (YoY -38.18%), management expenses ratio 24.55%; R&D expenses were 0.089 billion yuan (-52.73% YoY), R&D expenses rate 47.14%.

Sales revenue of Ryu Brain products increased 18% year on year, and market introduction continued to advance. In the first half of 2024, the company's two influenza conjugate vaccines achieved sales revenue of about 0.26 billion yuan, compared to 0.22 billion yuan in the same period last year, an increase of about 18.00% over the previous year. Meanwhile, MCV4 is currently conducting clinical trials for children and adults aged 4 and above. We believe that if the age-expansion indications are successfully approved, it will be possible to effectively expand the market space for influencing brain products, and the future release of products can be expected.

Pipeline research and development is progressing smoothly. As of the first half of 2024, PCV13i marketing applications have been accepted by the CDE; dTCP for infants and young children is in phase III clinical phase and the first three basic immunizations have been completed; Tdcp for adolescents and adults is in phase I clinical trials and clinical site work has been completed; Hib clinical approval has been received; and adsorbed tetanus has entered phase III. The company's PBPV obtained positive initial phase I clinical results. At the same time, phase I clinical trials of the recombinant shingles vaccine were simultaneously carried out in Canada using both intramuscular injection and nebulized inhalation; phase I clinical trials of the recombinant polio vaccine are also ongoing in Australia.

Profit forecasting and valuation. We expect the company's revenue in 2024-26 to be 0.84 billion, 1.16 billion yuan, and 1.98 billion yuan, respectively, up 136%, 38%, and 70% year-on-year, respectively; net profit to mother in 2024-26 is 0.4 billion yuan, -0.11 billion yuan, and 0.14 billion yuan. We assume a sustainable growth rate of 1.20 to 1.80% and a WACC value of 7.74 to 8.34%, then the company corresponds to a reasonable value range of 59.85 to 68.68 yuan/share, corresponding to a market value of 148.1 to 16.99 billion yuan, giving it a “superior to the market” rating.

Risk warning: R&D progress falls short of expectations, commercialization falls short of expectations.