Biosimilar drugs have brought innovation and transformation nodes. We believe that the company is at the point of transformation from integrated generic drugs to innovation-driven ones. The biosimilar engine is about to start, and albumin paclitaxel is expected to be released in 25 years. In addition, adalimumab, insulin, etc. are being launched one after another to form an echelon, opening up a growth ceiling. The traditional business is showing an upward reversal trend: 1) the pressure to collect formulations has gradually cleared up, and the quantity and price of APIs have been restored; 2) the number of US approvals for non-heparin preparations is growing rapidly, which is expected to support growth in the next 2-3 years. We are optimistic about the company's high pharmaceutical growth and biopharmaceutical layout. We expect net profit of 0.863/1.256/1.682 billion yuan to the mother in 2024-26E, corresponding to EPS 0.53/0.78/1.04 yuan; the company will be given 27.12x PE in 2025 (20% premium compared to comparable companies, mainly due to the company's relatively small revenue under pressure on raw materials), and the corresponding target price is 21.09 yuan to maintain “purchase”.

Non-heparin preparations: Expanding the mature business landscape, adding momentum to the company's growth in the next 2-3 years. Starting with the core product, enoxaparin preparations, the company has cultivated a mature formulation export business, achieving revenue exceeding 1.9 billion yuan in 2023, an increase of more than 25% over the previous year; in addition to enoxaparin, there is no shortage of large non-heparin products such as reganoxaparin and daptomycin in the product matrix. The market share quickly exceeded 15% within 2-3 years of the launch of the new product. We expect that by the end of 2024, the number of products approved overseas by the company will reach ~100, of which an average of ~20 new products were approved each year from 2022 to 2024. Taking into account the increase in the number of approvals and the pace of climbing after the launch of new products, we believe that the company has entered the harvest period for overseas non-heparin preparations, and the revenue from overseas small molecule formulations may reach 29% CAGR in 2024-2026.

Biosimilars: Patent expiration+policy support has opened up an industry window. The company's ability to complete the construction of biosimilar drugs has ushered in an industry-specific window: intensive patents for original drugs have expired, and many billion-level or even 10-billion-level single product markets have been unlocked one after another; the IRA Act changes the Medicare Part D compensation structure to drive insurers to adjust prescription sets, which is expected to increase biosimilar penetration rates. In the context of Dongfeng in the industry, the company's ability to commercialize biosimilar drugs in the US market has been initially built, including efficient R&D and reporting, a production quality system verified by many years of stable supply records and multiple rounds of FDA audits, Meitheal, a localized sales team unique to domestic companies, and sufficient channel experience for replicating new product sales.

Biosimilar drugs such as white purple and insulin have entered the cash out period. For the next stage of growth, fitness players will build a biosimilar product matrix through cooperation, self-development, and purchase: 1) Purchased adalimumab biosimilar drug approvals are expected to start sales in 2024; 2) Albumin paclitaxel is expected to be approved in 2025. The competitive pattern is good, and terminal demand is rigid. We expect 25/26 to contribute 0.156/0.402 billion yuan in revenue respectively; 3) Multiple products such as liraglutide and insulin are also expected to contribute 0.156/0.402 billion yuan in revenue; 3) Multiple products such as liraglutide and insulin are also expected to be sold in 2024 in 2024- It will be released one after another in 2026. We expect the biosimilar business to provide a substantial increase in the company's revenue and profits. Revenue is expected to reach 0.004/0.644/1.849 billion yuan in 2024-2026, further improving the company's growth curve.

Risk warning: risk of policy uncertainty, new product approval and sales falling short of expectations, exchange risk.