Event: The company's revenue for the first three quarters of 2024 was -19.57%, and net profit to mother -27.09%. In the first half of 2024, the company achieved operating income of 0.666 billion yuan (-19.57%), net profit of 0.261 billion yuan (YoY -27.09%); in the third quarter of a single quarter, revenue of 0.265 billion yuan (-10.35% YoY), and net profit to mother of 0.108 billion yuan (-8.68% YoY).

The company's Q3 profitability improved month-on-month. Pig prices have been rising rapidly since June, and downstream profits have continued. Investment in animal protection products has gradually increased, and the company's revenue decline narrowed in the third quarter. Judging from batch issuance data, 2024Q2/Q3, pseudorabies vaccine was -65.7%/-13.5% year over year, ring -30.0%/+57.1%, diarrhea +50.0%/-28.6%. The company's profitability improved month-on-month in the first three quarters of 2024, achieving a gross profit margin of 64.01% in the first three quarters of 2024, -9.78pcts year on year, 65.17% in the third quarter; achieving a net profit margin of 39.07% in the first three quarters, -4.10pcts year on year, and 40.67% in the third quarter of the single third quarter.

The company continues to develop new products and has potential for long-term growth. 1) The company continued to invest in R&D. In the third quarter of 2024, R&D expenses were 20.793 million yuan (+0.5% year-on-year), accounting for 7.85% of revenue. 2) In terms of new products, in the first half of the year, the company obtained a total of 4 new veterinary drug registration certificates, including the national class 1 new drug, porcine coronavirus inactivated vaccine (CHN-HN-2014 strain), porcine circovirus type 2 recombinant dry virus, and Mycoplasma pneumoniae double inactivated vaccine (KQ strain+XJ03 strain). In October, it was announced that it obtained a new veterinary drug registration certificate for live porcine pseudorabies vaccine (HB-98 strain, suspension culture). 3) In terms of product development, as of the third quarter of 2024, the company's porcine gastrostomach-delta coronavirus triple inactivated vaccine, swine fever-porcine pseudorabies secondary Asian unit vaccine, and live porcine pseudorabies vaccine are in the registration stage for new veterinary drugs and are progressing smoothly.

Investment advice: Since June, pig prices have entered an upward cycle, breeding companies have maintained high breeding profits, and demand for animal protection products and gross margin levels are expected to gradually rise. The company adheres to innovation leadership and has abundant research reserves, which is expected to further open up the company's future growth space. We expect the company to achieve operating income of 1.079/1.261/1.528 billion yuan in 2024-2026, net profit of 0.381/0.472/0.567 billion yuan, and PE corresponding to the closing price on October 30 is 16.7/13.5/11.2 times, respectively, to maintain the “gain” rating.

Risk warning: New product promotion falls short of expected risk; market competition increases risk; risk of cooperative research and development; risk of livestock and poultry prices falling short of expectations.