Incident: The company released a performance forecast for the third quarter of 2024. In the third quarter of 2024, the company expects to achieve net profit of 0.1-0.14 billion yuan, an increase of 100.56%-180.78% over the previous year; net profit after deducting non-return to mother of 0.1-0.14 billion yuan, an increase of 120.49% to 208.69% year on year.

The performance is in line with expectations, the advantages in the peptide field continue to be realized, and the high growth trend is expected to continue. 2024Q1-Q3 expects to achieve net profit of about 0.327-0.367 billion yuan (+256.72%-300.34%), with a median value of about 0.347 billion yuan (+278.53%);

It is estimated that non-net profit of 0.329-0.369 billion yuan (+272.81%-318.08%) will be achieved, with a median value of about 0.349 billion yuan (+295.44%). On a quarterly basis, 2024Q3 expects to achieve a median net profit of 0.12 billion yuan (+140.67%) and is expected to deduct non-net profit of 0.12 billion yuan (+164.59%). Net profit and unequal deductions to the mother continue to show strong performance. We expect that this is mainly due to: ① Some major commercial varieties of peptides in the self-selected product business ushered in a harvest period, showing a continuous trend in volume; ② demand in the global peptide industry chain continued to rise, and the company's sales of peptide APIs increased significantly year-on-year.

Self-selected products, mainly peptides and specialty APIs, continued to grow rapidly, and small-molecule CDMOs showed a steady recovery trend. 1. Independent products: Multiple strategic collaborations have been reached, and the release of production capacity is expected to continue to contribute to new growth momentum. 1) On the demand side, ① cooperated with many leading European generic drug companies for oral use of simeglutide and terpopeptide APIs; ② reached liraglutide formulation and API cooperation in the North American market and pioneered the first animal innovative drug polypeptide CDMO project; ③ signed a strategic cooperation agreement for simeglutide preparations in the South American market, and reached cooperation with leading generic drug companies to market the first analog of liraglutide preparations; ④ Reached cooperation with leading generic drug companies on the global market for liraglutide formulations; signed and promoted multiple oligonucleotide CDMO ⑤ services, etc.; Achieve GLP-1 innovative drug raw materials in the domestic market and formulation strategic cooperation.

2) On the supply side, ① the new 601 peptide workshop was capped ahead of schedule. It is expected that installation and commissioning will be completed by the end of 2024 to achieve a peptide production capacity of 5 tons/year; ② the new 602 peptide workshop is expected to complete construction, installation and commissioning in the first half of 2025, which will release another 5 tons/year of peptide production capacity; ③ forward-looking layout of oligonucleotide production capacity, and the 705 workshop will be capped.

We expect that as cooperation agreements continue to advance and new production capacity continues to rise, the company's independent product business is expected to continue to maintain a high growth trend. 2. C (D) MO: Large orders have been signed and are expected to gradually resume in 2024. With the advantages of two major technology platforms, the company has established long-term cooperative relationships with well-known pharmaceutical companies such as Gilead, Inset, Shoteng, and Mirati. The CDMO long-term supply contract with a large European pharmaceutical company with a total contract amount of 0.102 billion US dollars began to be delivered in the second quarter, and it is expected that the pace of delivery will be greatly accelerated starting in the second half of the year.

Profit forecast and valuation: Considering the strong demand for the company's independent selection of products, we expect the company's revenue in 2024-2026 to be 1.667 billion yuan, 2.353 billion yuan, and 3.565 billion yuan respectively, with growth rates of 61.29%, 41.15%, and 51.52% respectively; considering the company's high amortization of expenses such as convertible bonds and equity incentives in 2024, the expense ratio is expected to gradually rise. We expect net profit to mother in 2024-2026 will be 0.413 billion yuan, respectively The growth rates of yuan, 0.565 billion yuan, and 0.801 billion yuan were 153.62%, 36.68%, and 41.84%, respectively. The company has a rich pipeline of independently selected products, and the C (D) MO technology platform has significant advantages. It is expected to bring long-term growth and maintain a “buy” rating through its own product +C (D) MO two-wheel drive.

Risk warning events: Public data used in research reports may be at risk of information delays or untimely updates; risk of production capacity growth falling short of expectations; risk of loss of core technical personnel; risk of falling gross margin; risk of exchange rate fluctuations; risk of rising raw material supply and prices; risk of environmental protection and production safety risks.