Incident: The company released its report for the third quarter of 2024. In the first three quarters, it achieved operating income of 31.478 billion yuan, up 3.56% year on year; realized net profit of 2.562 billion yuan, up 17.05% year on year; realized net profit after deducting income from non-return to mother of 2.482 billion yuan, up 14.90% year on year; after deducting profit and loss effects such as equity incentive expenses and participating R&D institutions, etc., to deduct net profit of 2.739 billion yuan compared to the same period in 2023 26.81% Among them, the third quarter achieved operating income of 10.513 billion yuan, an increase of 5.03% year on year; realized net profit of 0.866 billion yuan, up 14.71% year on year; realized net profit deducted from mother of 0.857 billion yuan, an increase of 16.93% year on year.

Growth in various sectors is in line with expectations, and industrial microbiology is growing faster. ① Pharmaceutical industry: The overall operation continued to maintain a steady and positive trend in the first three quarters, achieving operating income of 9.941 billion yuan (including CSO business), up 10.53% year on year, and achieving net profit of 2.14 billion yuan, up 14.49% year on year; of these, the third quarter achieved operating income of 3.243 billion yuan (including CSO business), up 10.32% year on year, and achieved net profit of 0.755 billion yuan year on year, up 20.44% year on year. ② Pharmaceutical business: Overall operations showed a steady upward trend. In the first three quarters, revenue was 20.571 billion yuan, up 1.38% year on year, and cumulative net profit of 0.323 billion yuan, up 2.09% year on year. ③ Medical and aesthetic sector: Overall, it maintained steady growth, achieving revenue of 1.909 billion yuan in the first three quarters (excluding internal offsetting factors), an increase of 1.90% over the previous year.

Sinclair is actively expanding the global market sales of its medical and aesthetic injectable fillers and EBD products for optoelectronic devices. Affected by factors such as weak global economic growth, Sinclair achieved operating revenue of about 0.776 billion yuan in the first three quarters, down 20.30% year on year, and achieved revenue of 0.206 billion yuan in the third quarter, which is still declining year on year.

Domestic medicine and aesthetics achieved overall revenue of 1.133 billion yuan. Among them, Xinckley Aesthetics actively developed the domestic market. Revenue in the first three quarters was 0.909 billion yuan, up 10.31% year on year, and achieved revenue of 0.291 billion yuan in the third quarter, a slight year-on-year decline. Liraglutide weight loss plus botulinum toxin sales achieved revenue of more than 60 million yuan. ④ Industrial microbiology: The international market expansion continues to make positive progress, and the overall sales trend continues to improve. The first three quarters achieved sales revenue of 0.443 billion yuan, an increase of 30.17% over the previous year. With the continuous expansion of overseas markets and the continuous increase in the number of cooperative customers, the overall industrial microbiology sector is expected to continue to grow rapidly.

Self-research and external cooperation are carried out together, and key projects continue to advance. In the first three quarters, the company's R&D investment in the pharmaceutical industry (excluding equity investment) was 1.607 billion yuan, up 0.60% year on year, of which direct R&D expenditure was 1.149 billion yuan, up 12.41% year on year. Direct R&D expenditure accounted for 11.69% of the pharmaceutical industry's revenue. The company's innovative research and development focuses on the three major fields of endocrinology, autoimmunity and oncology. Currently, the innovative product pipeline has more than 70 items. With the continuous enrichment of the product pipeline, the company's innovative drug range has continued to expand to include small molecule drugs, targeted proteolytics, polypeptide drugs, antibody drug conjugates (ADCs), bispecific or multispecific antibody drugs, and the exploration of innovative treatments for endocrine, autoimmune, and tumor diseases. In addition, the company has many foreign cooperation projects, including TTYP01 tablets (edaravone tablets) in collaboration with Suzhou Aozong Biotech, Quanxin Biotech's QX005N, and Guizhou Hengba Pharmaceutical's 100% share acquisition, all of which provide long-term impetus to enrich the company's product pipeline and increase future sales revenue. In terms of medicine and aesthetics, the energy source device V20 was launched domestically in September of this year, and the V30 is about to be submitted for registration. Mali series products are expected to be launched next year. The efficacy, safety, and immunogenicity of botulism type A in collaboration with Chongqing Yuyan have all reached the established clinical trial end point, and the performance is excellent compared to comparison drugs.

Investment suggestions: The company's pharmaceutical industry, medical aesthetics, and industrial microbiology sectors remain steady, and innovation and transformation provide room for imagination for the company's medium- to long-term development. We expect the company's net profit to be 3.342/3.874/4.414 billion yuan in 2024-2026, up 17.71%/15.94%/13.93% year-on-year, EPS is 1.90/2.21/2.52 yuan respectively. The current stock price corresponding to 2024-2026 PE is 18/15/14 times, maintaining the “recommended” rating.

Risk warning: risk of market competition, risk of market promotion falling short of expectations, risk of new product development falling short of expectations.