Key points of investment:

The impact of procurement has basically been clarified. The inflection point of 2024H1 performance has been reached, and the generic drug sector has ushered in a reversal of the difficult situation. Beginning in 2021, the company selected the fourth to seventh batches of its main products. The 12 selected products dropped by an average of more than 90%. At the same time, the core variety of omeprazole sodium for injection was not selected, and market share was lost, causing the company to lose money in 2022 to 2023. The impact of PPI preparation collection in 2024 has been clarified, and thanks to the release of new anti-infective and chronic disease products, the 2024H1 company's net profit was 75.59 million yuan, which reversed the year-on-year loss. In the generic drug sector, the company has focused on high-barrier specialty generic drugs in recent years, and has formed product groups in digestive and anti-infective fields. We believe that the inflection point of the company's performance has been reached, and it is expected to be profitable throughout the year.

Innovative drugs are piling up and being distributed, and many promising varieties are being realized soon. The company insists on independent innovation and has developed a number of Class 1 innovative products. Currently, progress depends on late-stage products, including: ① The third-generation EGFR-TKI product ASK120067 tablets are the first innovative drug independently developed by the company. Indications for second-line treatment of advanced non-small cell lung cancer were submitted and accepted in November 2021, and NDA applications for first-line indications will also be accepted in August 2024. We expect second-line indications to be approved this year and participate in next year's health insurance negotiations. Considering the huge market size of non-small cell lung cancer and the therapeutic position of three generations of EGFR-TKI, we are optimistic about the increase in performance after the product is launched; ② Claudin 18.2 monoclonal antibody ASKB589 injection. The indications for first-line treatment of gastric cancer are currently in phase III clinical phase. The product is leading in domestic progress. It targets first-line treatment of patients with advanced gastric cancer, and covers a wide range of people. Phase II data showed outstanding efficacy and good safety as assessed by ORR. With Zolbetuximab already on the market, there is strong certainty that ASKB589 is a successful drug. We look forward to survival data such as PFS to be released later. ③ The ASKC109 capsules (maltosol iron capsules) introduced by the company are currently undergoing phase III bridging clinical trials in China and have been approved for marketing in the US and the European Union. Overseas research data shows that the effects of iron supplementation are comparable to those of intravenous iron supplements. Gastrointestinal reactions are small, and the withdrawal rate in clinical trials is less than 5%. In the early clinical phase, the company also has a variety of innovative products, such as ASKG712, which is the second VEGF/ANG-2 ophthalmic double antibody in the world to enter clinical stage after fareximab; ASKG315 and ASKG915, two IL-15 drugs developed on the company's SmartKine platform, use precursor drug design to mask peptides to solve the problem of cytokine drug development. After verification, they can be widely used in cytokine drug development in the future.

Profit forecasting and valuation. We expect the company's revenue for 2024-2026 to be 1.716 billion, 1.974 billion, and 2.393 billion, respectively, up 18.8%, 15.1%, and 21.2% year-on-year. Net profit attributable to mother was 0.081 billion, 0.134 billion, and 0.203 billion respectively. It is expected to reverse losses in 2024, with year-on-year growth rates of 65.3% and 51.3% in 2025-2026, respectively. Imitation Innovation representative companies were selected as comparable companies, and the average PS of the industry was 9 times. Considering that the company is in the early stages of implementing innovative drugs, the company was given 7.5 times PS, corresponding to a target market value of 12.82 billion in 2024. There is 35% room to rise compared to the current market value. For the first time, coverage was given, and a “buy” rating was given.

Risk warning: risk of price reduction in collection; risk of new drug development; increased risk of market competition.