Duan Company announced that 1-3Q24 achieved revenue of 16.8 billion yuan (+6.64% yoy) and net profit of 2.47 billion yuan (+25.85% yoy), of which 3Q24 achieved revenue of 4.96/0.67 billion yuan (+0.35/ 19.88% yoy). The company's 3Q24 revenue was stable and profit growth was strong, mainly due to: 1) the price of Twining's raw materials/intermediates 3Q was stable, and the combined cost reduction and efficiency performance was outstanding; 2) sales of large infusion 3Q were stable, and the superposition profit structure continued to be optimized. Looking ahead to 24 years, considering the 4Q peak period for large infusions, stable API intermediate prices, and Botai's potential new BD revenue, we are optimistic that the company's annual net profit growth rate is expected to impact 15-20% yoy and maintain a “buy” rating.

Big infusion: Sales volume is stable during the 3Q off-season. We are optimistic about structural optimization+new product release. We estimate that the sales volume of the company's 3Q24 Big Infusion will remain stable in the context of slight disturbances in the infectious disease-related market; at the same time, the sales expenses of the sector have declined and the product structure continues to be optimized, or the profit growth during the period is significant. Looking ahead to the whole year, we are optimistic that the revenue of the large infusion sector will be stable, and profits will grow faster. Consider: 1) 4Q is the peak period for traditional large infusions, and demand is expected to recover; 2) the release of new production capacity for powder/liquid double chamber bags contributes to continuous product structure; 3) the benefits of parenteral nutrition three-chamber bag products are included in the national negotiations to maintain the volume of medical treatment. Looking ahead to the long term, we are optimistic that the large infusion industry pattern will continue to be integrated, and the market share will continue to lean towards industry leaders.

Prices of core API intermediates have remained stable, and generic drug types may continue the 1H trend. We estimate that the company's 3Q24 API intermediate sector has been growing steadily year-on-year, mainly due to the fact that the price system for core products such as 6-APA and sulphur red remained stable. Looking ahead to the whole year, we are optimistic that this sector will continue to perform well: 1) Sulphur Red and 6-APA are still in balance between supply and demand, and prices are expected to stabilize; 2) the price of cephalosporin intermediates may continue to recover; 3) At the synthetic biological level, bisabolol has begun to rise in revenue, and ursodeoxycholic acid APIs have been approved for marketing. We estimate that 3Q24 revenue from the generic drug business will continue the 1H24 growth trend, mainly due to the decline in net sales volume and male products, and we are optimistic about the sector's high unit revenue growth in 24 years.

Innovative drug sector: SKB264 commercialization is on the horizon. The BD-related revenue volume is impressive. We estimate that the 2H24 innovative drug portion may be more expensive than 1H24. Considering that the 2H milestone/down payment revenue is lower (SKB571 or partial concession payment confirmation), the imminent listing of SKB264 will drive the company's sales team to expand. We are optimistic about 2H24-1H25 commercialization and data catalysis as follows:

1) SKB264 is expected to be commercialized in 11M24, and A166/A167/A140 is expected to be launched one after another; 2) 2H24 is expected to confirm SKB571 exclusive option income; 3) SKB264 phase III data for EGFR mutant NSCLC (TKI resistance, 2/3L), and subsequent data with A167 for the EGFR wild NSCLC (1L) phase II high-dose group are all expected to be read out in '25.

Profit forecasting and valuation

We maintained the company's 24-26 EPS forecast of 1.81/2.08/2.56 yuan, and gave the company 25-year 21 times PE (the same as its comparable company Wind's consistent forecast average), a target price of 43.68 yuan, and maintained a “purchase”.

Risk warning: The boom in API intermediates and large infusions fell short of expectations, and the development of innovative drugs fell short of expectations.