Revenue was affected by the collection and epidemic prevention product base, and profitability improved month-on-month. In the first half of 2024, the company achieved revenue of 6.636 billion yuan (-3.8%), after deducting a 2.2% year-on-year decline in epidemication-related products and a 4.8% month-on-month increase over 23H2; net profit of 1.108 billion yuan (-7.5%) to the mother was 1.108 billion yuan (-7.5%), an increase of 37.7% month-on-month. Product sales in various business segments have generally risen, the market share of core products has further increased, and brand influence continues to strengthen, but product prices are still in the process of connecting old and new policies, which has had a certain impact on the growth rate of performance. The board of directors recommended an interim dividend of approximately 0.42 billion, continuing to maintain a 40% dividend ratio.

The pharmaceutical packaging market position is stable, and the inflection point of orthopedic collection is evident. The medical device business achieved revenue of about 3.189 billion yuan (-7.7%) in the first half of 2024. Prices were still affected by national and regional procurement, but sales of major products maintained steady growth of 5% to 15%, while continuing to improve the product portfolio. The revenue of the pharmaceutical packaging business is about 1.168 billion yuan (+10.0%). Demand for pre-filled syringes continues to be strong, sales have increased by more than 20%, and market share has further increased; in the field of automatic injection pens, development agreements have been signed with dozens of pharmaceutical companies. The orthopedic business revenue of 0.745 billion yuan (-6.5%) was mainly affected by the high price base of spinal products in the same period last year; sales of spine, trauma, and joint products grew between 20% and 40% in the first half of the year, expanding new profit growth points in sports medicine, artificial bone, and minimally invasive spine fields. The revenue from the intervention business was 1.114 billion yuan (+5.0%). The US market maintained a stable position, the European market grew steadily, and the Chinese market declined slightly. In the first half of the year, the company achieved revenue of 1.72 billion yuan (+6.7%) in overseas markets, and the share of overseas revenue continued to rise; overseas products grew strongly, and revenue increased by more than 20% year on year.

The gross profit margin was affected by the reduction in collection prices, and operating cash flow remained healthy. National and regional procurement led to lower sales prices for some products. The company actively reduced production costs, partially offsetting the impact of price cuts on gross margin. The company's gross margin for the first half of 2024 was 50.9% (-0.5pp year on year). The sales expense ratio was 19.1% (-0.1pp), the management expense ratio was 8.1% (+0.3pp), the R&D expense ratio was 4.5% (+0.3pp), and the financial expenses ratio was 1.9% (y-0.1pp). The net interest rate fell to 17.4% (-0.6pp) due to multiple factors. The company's net operating cash flow for the first half of 2024 was $1.023 billion, and the net profit to mother had a cash content of more than 90%.

Investment advice: Considering the impact of mining, lower the profit forecast, the 2024-26 revenue is expected to be 13.66/14.46/15.43 billion (previously 14.36/15.68/17.11 billion), with a year-on-year growth rate of 3.2%/5.8%/6.7%; net profit to the mother of 2.19/2.35/2.54 billion (previously 2.26/2.57/2.89 billion), with a year-on-year growth rate of 9.2%/7.5%/8.0%, current stock price Corresponding PE = 9/8/8x. Weigao has established multi-dimensional barriers of brand image, quality control, scale effect, and cost advantage. It is optimistic about Weigao's continued growth and leading position in the industry, and maintains a “superior to the market” rating.

Risk warning: the risk of a sharp price reduction for collected products; the growth in production capacity and order volume of the pharmaceutical packaging business falls short of expectations; the risk of new business expansion falling short of expectations.