Recommended logic: 1) Global sales of peptide drugs reached 87.6 billion US dollars in 2024, and GLP-1 drugs are on the rise. The market size of polypeptide APIs in China is expected to reach 65.25 billion yuan in 2030; 2) the company's production capacity is about to be implemented, and API revenue is expected to more than double within 2 years; 3) 3 “barefoot” formulations were selected and collected, and 2024H1 formulation revenue increased dramatically by 48.3%.

GLP-1RA is leading the rapid growth of peptide drugs, and the development of peptide APIs is booming. Global peptide drug sales are expected to reach $87.6 billion in 2024, and will continue to grow at a compound annual growth rate of 8.4%, reaching $141.9 billion in 2030. GLP-1 drugs are suitable for common symptoms such as diabetes and obesity. The combined market size growth rate reached 33.7% in the past 7 years. Among them, sales of simeglutide reached 18.45 billion US dollars in 2023, an increase of 97.7% over the previous year. Many popular varieties, such as simeglutide, have expired one after another, setting off a boom in generic production, and demand for APIs has increased dramatically. The rapid growth in GLP-1RA sales has led to a surge in demand for upstream peptide APIs. It is estimated that China's peptide API market will reach 65.25 billion yuan in 2030.

Various formulations are included in collection to achieve release, and the integrated cost advantage of raw material formulations is prominent. The company has 10 varieties of peptides and obtained 14 production approvals. Octreotide acetate injections were selected for the seventh batch, and atosiban acetate injections and injectable somatostatin were included in the eighth batch, all of which achieved a rapid increase in market share, driving the formulation business to grow 45.3% year-on-year in the first half of 2024. The company reserves a number of peptide preparations and is expected to win the bid for subsequent batch collection, leading to an increase in volume. At the same time, the company's integrated development of raw materials and formulations has highlighted its cost advantage. The gross margin of the formulation sector will still reach 75% in 2023. As collection reduces sales expenses, the net profit level is also relatively impressive.

New production capacity is about to be implemented, and performance will gradually be released. Currently, it has an annual production capacity of 404 kg of APIs and an annual production capacity of 5.5 million tablets. The company will speed up production capacity expansion. The IPO fund-raising project “395 kg per year production line project for polypeptide APIs” will gradually be put into operation in the second half of 2024. It is expected that after completion and operation, it will have 7 new GLP-1 related API production lines, with a total monthly output of more than 35 kg, while increasing formulation production capacity by 3.15 millions/branch every year to meet the huge demand for collection. Currently, the company's production line is at full capacity, and the market supply is in short supply. As production capacity is gradually put into operation, performance will gradually be released.

Profit forecast and investment advice: As the company's API production capacity continues to be implemented, GLP-1RA's raw material production capacity is in short supply, and the API sector will usher in rapid growth. The three pharmaceutical products were selected for collection and release. We expect the company's net profit to be 1, 150, and 190 million yuan respectively in 2024-2026, corresponding to PE of 33, 23, and 18 times. The compound net profit growth rate for the next three years will be 39%. Considering that the company's future business continues to grow rapidly, it is recommended to keep an eye on it.

Risk warning: the risk of new drug development falling short of expectations; the risk of rising raw material costs; the risk of price reduction due to increased competition for APIs, the risk that the commissioning and operation results of projects under construction will fall short of expectations.