Company events: The company released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 1.69 billion yuan, a year-on-year increase of 23.1%, and achieved net profit of 0.16 billion yuan (up 119.4% year on year); in 24Q2, it achieved operating income of 0.93 billion yuan, an increase of 25.3% year on year, and achieved net profit to mother of 0.07 billion yuan (up 57.1% year on year), in line with market expectations.

The rapid growth of cypofol led to a steady increase in the company's overall revenue. By business segment, 24H1, the anesthetic product line achieved revenue of 0.52 billion yuan, a year-on-year increase of 50.9%; the API business achieved revenue of 0.32 billion yuan, a year-on-year increase of 33.4%; the parenteral nutrition product line achieved revenue of 0.26 billion yuan, a year-on-year decrease of 7.5%; other indications achieved revenue of 0.28 billion yuan, a year-on-year decline of 6.7%, etc., which led to a relatively rapid increase in the company's overall revenue in the first half of 24. In terms of gross margin, 24H1's overall gross margin was 71.9%, compared to 71.3% for the same period in '23; in terms of cost ratio, in the first half of 2024, the company's sales, management, and R&D expenses were 35.0%, 11.2%, and 12.7%, respectively, and 35.5%, 13.0%, and 15.3% for the same period in '23, respectively. In terms of net interest rate, 24H1's net interest rate reached 9.7%, compared to 5.2% in the same period last year.

Innovative drugs are being released rapidly, and the generic drug sector is stabilizing. Cypofol is a class 1 intravenous anesthetic drug independently developed by the company. It passed the national health insurance negotiations again in November 2023, and all indications were included in the “National Medical Insurance Drug Catalogue (2023 edition)”. As of 24H1, cyclopofol had covered more than 2,500 hospitals. According to Pharmaceutical Rubik's Cube amplified data, cyclopofol had reached 21.51% of the intravenous anesthesia market share by May 2024, surpassing propofol, imazole, dextromide, and rema for two consecutive months. Both phase III clinical trials of the narcotic HSK3486 (cyclopofol injection) conducted by “Hisco International” in the US have been completed, and it is expected that an NDA will be declared in the US.

Innovative drugs continue to be rich in research pipelines, and long-term steady growth can be expected. In terms of marketed varieties: In 2024, a class 1 new drug, the third-generation central nervous system calcium ion channel modulator cleigabarin (indications for peridiabetic neuralgia and post-herpes zoster neuralgia), was approved for marketing, and the Class 1.1 innovative drug, the ultra-long-lasting oral dipeptidyl peptide kinase inhibitor coglitin (hypoglycemic indication), was approved for marketing. In terms of research varieties: as of 2024H1, there are 16 Class 1 innovative drugs that have entered the clinical stage: 1) Cypofol: Chinese pediatric indications are undergoing registered clinical research; phase III clinical promotion of the “general anesthesia-induced” indication in the US; 2) The analgesic drug HSK21542 “pain relief after abdominal surgery” was declared for NDA in October 2023, and the “chronic kidney disease-related itch” indication was included in priority review in June 2024; 3) HSK21542 oral formulations are undergoing “chronic itch” phase II Clinical; 4) Cligabalin: An EOP2 communication application was submitted for “adjuvant analgesia” in June 2024, awaiting CDE feedback; “central nervous system pathological pain” has already begun phase III clinical research, etc.

Profit forecasting and valuation. We expect the company to achieve net profit of 0.42, 0.58, and 0.79 billion yuan respectively in 2024-2026, with year-on-year growth rates of 42.1%, 37.3%, and 37.5%, respectively. The PE corresponding to the current stock price is 87, 64, and 46 times, respectively. Hengrui Pharmaceutical, Xinlitai, and Colon Pharmaceutical were selected as comparable companies. Considering that cyclopophenol is growing rapidly and there is a large future market space, new drugs under development are continuously enriched and covered for the first time, giving them a “buy” rating.

Risk warning: risk of R&D falling short of expectations; risk of sales falling short of expectations; risk of industry policy, etc.