Matters:

The company announced the 2024 three-quarter report, achieving revenue of 2.146 billion yuan (+13.36%), net profit of 0.45 billion yuan (+45.08%), and net profit of 0.418 billion yuan (+44.84%) after deducting non-return to mother. The company's performance exceeded previous expectations.

Among them, the 2024Q3 single quarter achieved revenue of 0.78 billion yuan (+15.47%), net profit to mother of 0.166 billion yuan (+47.38%), and net profit of 0.163 billion yuan (+47.37%) after deduction.

Ping An's point of view:

The first three quarters of 2024 exceeded expectations, and profit volume reached a new high in a single quarter. In 2024Q3, the company achieved revenue of 0.78 billion yuan (+15%) and net profit to mother of 0.166 billion yuan (+47%), exceeding previous market expectations, while the profit for the single quarter reached a record high. The revenue side is lower than the profit side, mainly because the core product Loxoprofen Sodium Gel Patch Alliance has reduced its price, and the collection also reduced the company's gross margin and sales cost ratio. The company's gross profit margin for the first three quarters of 2024 was 73.76% (-4.23 pp), and the sales expenses ratio was 39.85% (-6.73 pp). The company's net interest rate increased significantly, reaching 20.96% (+4.58 pp) in the first three quarters of 2024.

Topical drug delivery pipelines are rapid and rich, and innovative products are not afraid of changes in the pattern. As of 2024H1, the company has entered the registration process for external administration of propiocaine cream, lidocaine gel paste, loxoprofen sodium gel patch, loxoprofen sodium gel patch, flurbiprofen gel paste, indomethacin gel patch, etc. It is expected that these varieties will be approved in 1-2 years, greatly enriching the company's external administration pipeline. Currently, new entrants to the gel patch industry mainly imitate the two types of loxoprofen sodium gel patch and flurbiprofen gel patch, and the company is developing many improved new drugs in the future, which have a better competitive pattern. Therefore, we believe that even with new entrants in the future, the company is expected to maintain its leading position with its product pipeline and innovative attributes.

Optimistic about the company's long-term development and maintaining a “recommended” rating. Considering that the three-quarter report's performance exceeded expectations, we raised the company's 24-26 net profit forecast to 0.552 billion, 0.726 billion, and 910 billion yuan (the original forecast was 0.505 billion, 0.676 billion, and 0.886 billion yuan). The current stock price corresponds to 2024 PE only 22 times, maintaining the “recommended” rating.

Risk warning. 1) R&D risk: The company is developing many varieties, and there is a risk of failure or falling short of expectations; 2) Price reduction risk: the company's core products are likely to be collected and reduced in price beyond expectations; 3) Risk of worsening competition pattern: Currently, there are many new entrants applying for production using the BE method. Once approved by CDE, the company's core products will face a situation where the short-term competitive pattern deteriorates.