Brief performance review

On October 25, 2024, the company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 5.805 billion yuan (-11.19%, same ratio below); realized net profit of 1.903 billion yuan (-2.13%); and realized net profit of 1.699 billion yuan (-7.06%) after deduction of non-return to mother.

On a quarterly basis, in Q3 2024, the company achieved revenue of 1.771 billion yuan (-7.18%); realized net profit attributable to mother of 0.565 billion yuan (-6.58%); and realized net profit deducted from non-mother of 0.519 billion yuan (-10.69%).

Management analysis

The slight decline in gross margin may be related to changes in product structure. Both Q3 revenue and net profit to mother increased month-on-month in Q2 in '24. The gross margin for Q3 in '24 was 78.53%, a year-on-year decrease of 3.3 pct. It is possible that rabeprazole sodium enteric capsules continue to be affected by collection. At the same time, the company's sales expenses rate continued to decline. In Q3, the company's sales expenses ratio was 32.77%, a year-on-year decrease of 4.84 pcts.

Pu DiLan Anti-Inflammatory Oral Solution is about to be transferred to Shuangkuan. Children's Shijiao Clear Heat Remedies are not included in the draft for comments on the collection of proprietary Chinese medicines. According to the announcement of the National Drug Adverse Reaction Monitoring Center at the end of September, the conversion of Pudilan Anti-inflammatory Oral Liquid to Double Span is being announced. After successfully switching to Double Cross, it is expected to further expand its out-of-hospital market. According to the “National Proprietary Chinese Medicine Procurement Alliance Centralized Procurement Document” (Draft for Comments) published by the Hubei Health Insurance Service Platform, children's tempura granules are not included, which is conducive to continued growth in sales in the short term. Children's tempurative syrup is also included in the “2024 National Basic Medical Insurance, Work Injury Insurance, and Maternity Insurance Drug Catalogue Adjustment and Declaration List Passing Formal Examination”. If it successfully passes medical insurance negotiations, it is expected to be a good supplement to granules.

Profit Forecasts, Valuations, and Ratings

The company is still absorbing the impact of the high base in the short term, and medium- to long-term R&D and BD pipelines are expected to gradually be implemented, empowering the company's development. Based on the current development situation, we lowered our 24-26 net profit forecast to mother from 2.902/3.205/3.577 billion yuan

2.698/2.98/3.307 billion yuan, up -4%/10%/11% year on year, EPS was 2.93/3.23/3.59 yuan, respectively, and current price corresponding PE was 10/9/9 times, respectively, maintaining the “buy” rating.

Risk warning

The risk that the product approval process falls short of expectations, the risk that the BD acquisition falls short of expectations, the risk of product collection price reduction, etc.