The Pearl Group released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 9.082 billion yuan, -5.94% year on year; net profit to mother of 1.673 billion yuan, +4.44% year over year; net profit after deducting non-return to mother 1.631 billion yuan, +3.51% year over year.

Looking at 2024Q3 alone, the company achieved operating income of 2.799 billion yuan, -5.59% year over year; net profit to mother 0.502 billion yuan, +7.45% year over year; net profit after deducting non-return to mother 0.475 billion yuan, -1.36% year over year.

Opinion: Interest income is declining, and it is expected that major products will be approved one after another

On the revenue side, 2024Q3's revenue fell 5.59% year on year. We believe that the impact of the price reduction is still being digested, mainly due to the implementation of new medical insurance negotiation prices for iprazole injections. On the profit side, net profit to mother increased year on year, and negative effects such as vaccine impairment have been cleared; however, the company's 2024Q3 interest income decreased by about 0.18 billion yuan year on year, affecting overall profit performance.

By sector, chemical agents achieved revenue of 4.714 billion yuan, a year-on-year decrease of 8.52%. Among them, the digestive tract achieved revenue of 1.854 billion yuan, a year-on-year decrease of 18.66%; sexotropic hormones achieved revenue of 2.308 billion yuan, an increase of 5.46%; spiritual products achieved revenue of 0.443 billion yuan, an increase of 3.11%; and anti-infective and other products achieved revenue of 0.109 billion yuan, a year-on-year decrease of 57.32%. The revenue from APIs and intermediates was 2.521 billion yuan, a year-on-year decrease of 2.55%. Traditional Chinese medicine formulations achieved revenue of 1.041 billion yuan, a year-on-year decrease of 16.49%. Biologics achieved revenue of 0.131 billion yuan, an increase of 15.98% year over year.

Diagnostic reagents and equipment achieved revenue of 0.566 billion yuan, an increase of 21.03% over the previous year.

In terms of financial indicators, the 2024Q1-3 sales expense ratio was 27.05% yoy -2.10pp, absolute amount 2.456 billion yuan -12.73%; R&D expense ratio 8.09% yoy -2.12pp, absolute amount 0.734 billion yuan -25.49% yoy; management expense ratio 5.20% yoy +0.16pp, absolute amount 0.473 billion yuan YoY -2.95%. Financial costs $-54.93 million, compared to -0.216 billion yuan for the same period in 2023. Net cash flow from operating activities was 2.308 billion yuan, an increase of 4.32% over the previous year. Q1-3 Gross sales margin was 65.81%, up 1.88pp year over year.

Single Q3, sales expense ratio 25.59% yoy -2.98pp, R&D expense ratio 8.71% yoy -3.94pp, management expense ratio 5.06% yoy -0.88pp. Gross profit margin 65.47% YoY +1.91pp.

Independent research and development+external introduction work in both directions, and continuous enrichment of pipelines in advantageous fields. The company has successively introduced innovative DHODH inhibitors in the anti-infective field, innovative PDE5 inhibitors in the andrology field, and innovative neuropsychiatric drug KCNQ2/3. In addition, aripiprazole microspheres and simeglutide biosimilar drugs have been declared for marketing. Human follicle-stimulating hormone will soon be declared for marketing, and IL-17A/F monoclonal antibodies will enter phase 3 clinical trials. The continuous enrichment and promotion of pipelines will further enhance the company's compliance sales capability advantages in characteristic fields, and performance is expected to accelerate development.

Profit forecasting and valuation. Based on the company's excellent management, sales team, monoclonal antibody platform, microsphere platform, etc., the company's long-term investment value is outstanding. Based on the current state of the company's operations, we have lowered our profit forecast.

Net profit due to mother for 2024-2026 is estimated to be 2.058 billion yuan, 2.231 billion yuan, and 2.536 billion yuan, respectively, with increases of 5.3%, 8.4%, and 13.7%, respectively. The corresponding PE is 17x, 16x, and 14x, respectively.

The company is based on the long-term layout of innovative biopharmaceuticals+high-end complex formulations, and the internationalization strategy is expected to continue to advance in the future. We are optimistic about the company's long-term development and maintain a “buy” rating.

Risk warning: risk of changes in industry policies, risk of product price reduction, risk of new drug development.