Revenue growth in the first half of the year fell short of expectations: the company's revenue for the first half of 2024 was 16.28 billion yuan (+1.3% year over year, same below), gross profit of 11.65 billion yuan (+3.7%), and gross profit margin of 71.6% (+1.7 pts). Based on the profit attributable to shareholders of 2.02 billion yuan (+1.8%) as shown in the financial statements, the net interest rate to mother is 18.5% (+0.1 pts). By sector, the proprietary medicine sector recorded revenue of 13.55 billion yuan (+4.8%), and Q2 revenue declined markedly; although the price of vitamin C raw products slowly rebounded, sector revenue fell 5.4% year-on-year in the first half of the year to 0.98 billion yuan; the antibiotic raw materials sector was depressed by a decrease in overseas demand, with revenue of 0.87 billion yuan (-6.4%); due to falling prices of caffeine products, the functional food sector earned 0.88 billion yuan (-25.2%).

Mingfule helped maintain growth in the neurological sector, and Enbipu has broad development space outside the hospital: in the proprietary medicine sector, the neurological sector achieved revenue of 5.236 billion yuan (+15.0%). Ming Fu Le was approved as an indication for cerebral infarction, injecting sufficient impetus into neurological growth. Compared to myocardial infarction indications, cerebral infarction indications can be dosed more quickly. Enbip DoT is limited by the hospital's medical model, has yet to maximize its value, and in-hospital sales have bottlenecks. The company has established a dedicated sales team to connect in-hospital and out-of-hospital sales to extend DoT, which can not only achieve deeper benefits for patients, but also support the continued growth of Enbipu's sales through continued efforts on the retail side.

The collection led to significant pressure on the tumor sector, and the relay of new products continued: anti-tumor, anti-infection, cardiovascular, respiratory, digestive metabolism, and other fields, respectively, revenues of 2.68 billion yuan (-10.2%), 2.31 billion yuan (+7.7%), 1.23 billion yuan (-4.5%), 0.76 billion yuan (-13.5%), 0.65 billion yuan (+55.4%), and 690 million yuan (+8.3%). Due to the huge impact of Beijing-Tianjin-Hebei 3+N collection, sales of the two products, Tianjin Youli and Domesu, declined markedly. The impact of harvesting has not been fully absorbed and will continue in the second half of the year. Many new products continue to be released, but this has not yet been able to offset the decline in sales due to collection. However, many of the company's pipelines are still continuing to advance to the commercialization stage. PD-1 enranzubimab was approved for 2L cervical cancer in June. Omalizumab and amphotericin B liposomes are expected to be approved for marketing in 2024, while white purple II, docetaxel, usinumab, and meloxiconacin are expected to be approved for marketing in 2025. Additionally, the FDA has completed a GMP on-site review of two liposomes, amphotericin and irinotecan, and is expected to approve their listing in the US in the first half of 2025. As new products continue to be approved for marketing, and health insurance negotiations promote admission and sales, the proprietary medicine sector is expected to resume rapid growth next year.

Target price of HK$9.76, purchase rating: We used DCF as the company's valuation. WACC was 12%, with a sustainable growth of 1%. We calculated that the target price was HK$9.76, corresponding to a price-earnings ratio of 18.2 times in 2024, with room for an increase of 56.9% from the current price.