Matters:

The company announced its 2024 three-quarter report, achieving revenue of 5.457 billion yuan (-2.73%), net profit of 0.387 billion yuan (+0.36%), and net profit not returned to mother of 0.289 billion yuan (-6.81%). The company's performance was in line with expectations.

Among them, the 2024Q3 single quarter achieved revenue of 1.903 billion yuan (+3.41%), net profit to mother of 0.158 billion yuan (-2.91%), and net profit of 0.129 billion yuan (-2.90%) after deduction.

Ping An's point of view:

Revenue resumed positive growth in the 2024Q3 single quarter, and the sales expense ratio improved significantly. In 2024Q3, the company's revenue was 1.903 billion yuan (+3.41%), +11.83% month-on-month. It was the first quarter with positive revenue growth in 2024, reflecting the company's positive trend. The gross profit margin for the first three quarters of 2024 is 40.91% (-4.15pp). We think it is mainly related to changes in the company's revenue structure. The share of high-margin injection revenue is expected to continue the half-year downward trend; the net interest rate is 7.16% (+0.10 pp), mainly due to a significant improvement in sales expenses, with a sales expense ratio of 25.99% (-5.06pp) for the first three quarters of 2024.

Focus on aging health and chronic disease management, and forge a new engine for development through R&D innovation. R&D expenses for the first three quarters were 60.01 million yuan (+39%). During the reporting period, Xishuangbanna Pharmaceutical, a wholly-owned subsidiary of the company, received approval for colchicine tablets and became the first company to pass the evaluation. The company's self-developed traditional Chinese medicine/natural medicine class 1 new drug for ischemic stroke KYAZ01-2011-020 phase II clinical data is being analyzed.

KYAH02-2020-149, a Class 2 improved chemical drug, has entered the clinical research stage. Meanwhile, two Class 3 generic drugs continue to advance BE tests.

I am optimistic that the company's industrial potential will continue to be unleashed and maintain a “recommended” rating. The company's five-year plan targets industrial revenue to reach 10 billion dollars by 2028, and it is currently in the early stages of unleashing its potential. We maintain the company's 2024-2026 net profit forecast of 0.552 billion, 0.7 billion, and 889 million yuan, respectively. The current stock price is 20 times that of 2024, and maintains the “recommended” rating.

Risk warning. 1) Integration risk: The company announced the proposed merger and acquisition of the torch, and there is a risk that the integration falls short of expectations; 2) collection risk: the company's core products are at risk of a sharp price reduction; 3) the risk of brand building falling short of expectations: the company plans to become the first stock of Yinfa Health, and the risk of brand building falls short of expectations.