Incident: The company released its 2024 three-quarter report. The first three quarters achieved operating income, net profit to mother, and net profit without return to mother were 1.378/0.365/0.345 billion yuan, respectively, -19.83%/-20.70%/-20.93% compared with the same period last year. Net cash flow from operating activities was $0.56 billion, or -41.54% YoY. Among them, the pharmaceutical sector achieved operating income and net profit of 1.351/0.691 billion yuan, respectively, or -19.84%/-23.44% year-on-year. The performance fell short of market expectations.

Comment:

Under the influence of industry adjustments and the expansion of collection, the revenue and profit of Dyne Pharmaceuticals declined sharply in Q3. The company's 24Q1-Q3 revenue for the single quarter was 0.572/0.583/0.224 billion yuan, respectively, +1.85%/-60.47%; net profit to mother was 0.169/0.163/0.034 billion yuan, +3.00%/+3.24%/-75.85%. The sharp decline in single-quarter results was affected by factors such as weak growth in the pharmaceutical industry and continued expansion of drug collection coverage. The 24Q1-Q3 revenue for the core pharmaceutical sector was 0.563/0.573/0.215 billion yuan, respectively, +2.34%/-1.34%/-61.28%; net profit was 0.318/0.313/0.06 billion yuan, compared to +0.78%/-0.26%/-78.04%. The decline in revenue for the third quarter is estimated to be related to adjustments in the external environment and fluctuations in the company's delivery pace. The decline in profit was greater than the increase in sales of operating costs and various expenses.

There were many highlights on the company's R&D and production side in the first half of the year. The company adheres to the R&D concept of tailor-made children's medicines, is guided by children's clinical needs, and actively carries out R&D innovation work. 24H1 Dyne Pharmaceutical's five children's drug research and development projects were listed as major projects of the Ministry of Science and Technology. The R&D plan progressed on schedule. All 5 projects completed assessment points; completed 3 new product declarations; obtained 5 invention patents; and Dyne Pharmaceutical was officially approved as a “National Enterprise Technology Center”.

The Rongcheng production base continues to be meticulously managed to continuously improve the level of automation and intelligence in production. 24H1's pharmaceutical production license added the production scope of “suppositories”; the 112 workshop completed on-site inspections and obtained production licenses.

Continuously innovate marketing methods and implement mid-term dividends for the first time. 24Q3 Dyne Pharmaceutical and China Resources 39 Pharmaceutical Co., Ltd. signed a strategic cooperation agreement for vitamin D drops (capsule) products, and signed strategic cooperation agreements with Alibaba Health Pharmacy and Jingdong Health platforms to jointly build and share digital health. According to the “Expert Consensus on Clinical Application of Vitamin A and Vitamin D in Chinese Children (2024)” issued by 24H1, Vitamin AD is recommended to be added to the age of 0-18. The company is actively expanding the promotion age of Ike's new products, which is expected to push up the market ceiling for core products. The company held an extraordinary shareholders' meeting on August 20, 2024 to review and approve the “Company's 2024 Mid-Term Profit Distribution Plan”: based on the total share capital on June 30, 2024, a cash dividend of 5.00 yuan (tax included) was distributed to all shareholders of the company for every 10 shares, and the 24H1 dividend payment rate was 35.30%.

Profit forecasting, valuation and ratings: Walter is a leading children's medicine company. It has deep brand and channel advantages, and the momentum for state-owned enterprise reform is strong. Taking into account the impact of phased adjustments in the pharmaceutical industry and the expansion of collection, the 24-26 net profit forecast was lowered to 0.473/0.543/0.616 billion (down 29%/29%/30% from the previous year), -19%/+15%/+14%. The current stock price corresponds to PE 16/14/12 times, and downgraded to an “gain” rating.

Risk warning: Ike's new sales fall short of expectations; market competition intensifies; risk of failure in the development of new drugs.