Incident: The company achieved revenue of 30.912 billion yuan in the first three quarters of 2024, up 1% year on year. Excluding COVID-related products, operating income increased 6% year on year; realized net profit to mother of 2.011 billion yuan, down 12% year on year, after deducting net profit of 1.836 billion yuan without return to mother, an increase of 25% year on year. 24Q3 revenue of 10.449 billion yuan increased 12% year over year: net profit to mother was 0.786 billion yuan, up 55% year over year; net profit after deducting non-return to mother was 0.582 billion yuan, up 475% year on year.

2403's revenue and net profit to mother both improved year on year, and net profit to mother increased. The company further focused on innovative drugs and high-value devices to promote lean operations, cost reduction and asset weight reduction. 24Q3 revenue recovered year on year, with gross profit margin of 48%, up 3 pcts year on year. Net profit to mother grew faster year on year. Net profit to mother increased by 7.5% year on year by 2 pct year on year, sales expenses rate decreased by 22%, reduced 1 pct year on year, management expense ratio decreased by 2 pcts year on year. The R&D cost rate decreased by 3 pcts year on year, and investment income in joint ventures and joint ventures decreased by 0.37 billion yuan year on year. The change in net interest rate of billion yuan to mother is mainly due to a combination of factors such as fee rate control, disposal of COVID-related products and assets showing signs of impairment in the same period of 2023, calculation of corresponding asset impairment preparations, and year-on-year decline in joint venture investment income.

Cash flow from operating activities improved markedly. In the first three quarters of 2024, net cash flow from operating activities was 2.987 billion yuan, an increase of 21% over the previous year, mainly due to changes in operating profit and responsibility for optimizing supply chain management and improving operational efficiency.

Continue to promote innovative transformation and the development and implementation of innovative products, and increase the growth momentum of innovative drugs. In terms of innovative research and development, we continue to focus on superior pipelines and optimize R&D project management and resource allocation. The total R&D investment in the first three quarters of 2024 was 3.915 billion yuan, and the R&D cost was 2.648 billion yuan. In 2024, trastuzumab was marketed in the US, rabies vaccine (Vero cells) was marketed in China, 4 new indications of adazurizumab were approved in China, the second indication for avatripopam maleate was approved in China, and injectable botulinum toxin A (daxifumab) was approved for marketing in China in September 2024 to temporarily improve moderate to severe brow lines caused by frowning and/or brow lowering activity in adults. Furthermore, in September 2024, the company plans to invest 2.7 million US dollars in cash to transfer 50% of Fosun Kate's shares held by KitePharma, and will hold 1oo% of Fosun Kate's shares after completion. Fosun KitePharma will also continue to promote development and commercialization cooperation with KitePharma of the existing licensed products Axi Cel (already listed product “Yikaida”) and Brexu-Ce1 (developed from FKC889) within China and Hong Kong and Macau.

Investment suggestions: The company has a wealth of listed products, covering a wide range of fields. With the launch of anti-tumor products, the sales volume and sales share of Gaosuli Biopharmaceuticals have gradually increased. At the same time, the company continues to develop and introduce macromolecules and small molecules. Innovation and internationalization contribute new volume to the company. We expect the company's revenue in 2024-2026 to be 44.7/49.5/54.5 billion yuan, with a year-on-year growth rate of 8%/11%/10%, and net profit of 2.8/3.5/4.2 billion yuan, with a year-on-year growth rate of 19%/24%/20%. Corresponding PE is 25/20/17X, giving it a “recommended” rating.

Risk warning: the risk of rising raw material prices; the risk of exchange rate fluctuations affecting the company's exchange earnings; the risk that downstream demand recovery falls short of expectations; the risk that product sales fall short of expectations; the risk that R&D progress falls short of expectations.