Incidents:

On October 24, 2024, Tebao Biotech announced its results for the third quarter of 2024, achieving operating income of 1.955 billion yuan, +33.90% year over year; net profit to mother 0.554 billion yuan, +50.21% year over year; net profit without return to mother 0.581 billion yuan, +41.34% year over year. Looking at a single quarter, the company's 2024Q3 revenue was 0.765 billion yuan, +37.52% year over year; net profit to mother was 0.25 billion yuan, +49.83% year over year; net profit without return to mother was 0.251 billion yuan, +40.90% year over year.

Comment:

Core products are maturing, and costs are shrinking steadily

The company's overall gross margin was 93.35%, -0.23 percentage points year on year; the cost ratio for the period was 59.32%, 1.96 percentage points; of which the sales expenses ratio was 39.80%, -1.47 percentage points year on year; management expenses ratio was 9.73%, -0.71 percentage points year on year; financial expenses ratio -0.10%, +0.12 percentage points year on year; R&D expenses ratio was 9.89%, +0.10 percentage points year on year; net operating cash flow was 0.292 billion yuan, -23.75% year on year. The overall financial situation remained stable in Q3 compared to Q2. As the maturity of core products increased, the company's business conditions also tended to be steady.

Lay out new treatments for hepatitis B and expand the depth of the disease field

The company's core single product, Pegobin, is a first-line drug for chronic hepatitis B, and has obvious clinical value in inhibiting viral replication and enhancing immunity. In the first quarter of this year, the marketing application for Pegbin combined with nucleoside analogs for clinical treatment of chronic hepatitis B in adults was accepted by the State Drug Administration. In addition to defending the high ground of core products, the company strengthened its layout in the field of liver disease. On September 20, the company introduced an oral drug targeting the FIC drug retinoic acid X receptor (RXRα) independently developed by Tengji Pharmaceutical to treat non-alcoholic fatty liver disease (NASH), which has now been approved for clinical trials in China. Previously, the company had cooperated with Aligos to lay out hepatitis B micronucleic acid drugs to begin research on interferon therapy with RNAi.

Establish an equity incentive plan to strengthen team cohesion

On September 27, the company issued the “Notice on Granting Restricted Shares for the First Time to the 2024 Restricted Stock Incentive Plan”, making additional revisions to the stock incentive plan issued on August 22. The first restricted stock incentive assessment year granted under this incentive plan is for the three fiscal years 2024-2026, and each fiscal year is assessed once. The assessment conditions are: the net profit growth rate in 2024 is ≥ 30% compared to 2023, and the net profit growth rate in 2025 is ≥ 70% year-on-year, 2026 net profit Profit growth rate was over 120% compared to 2023. On September 25, 2024, the initial grant date, 4.798 million shares were awarded to 673 incentive recipients, including 8 core executives, at an award price of 39.80 yuan/share.

Investment advice

We expect the company's revenue to increase 29.6%/29.9%/23.8% year-on-year from 2024 to 2026 by 2.72/3.54/4.38 billion yuan, respectively; net profit to mother is 0.77/1.05/1.35 billion yuan, respectively, up 38.3%/36.5%/28.8% year over year, respectively, and the corresponding valuation is 44X/32X/25X. I am optimistic about the favorable competitive position of the company Pegbin, the continuous expansion of the range of applicable groups, the increase in demand for medication, and maintain a “buy” rating.

Risk warning

The risk of fluctuating sales, industry policy uncertainty, new drug development risks, etc.