Incident: On October 29, 2024, Hanyu Pharmaceutical released its report for the third quarter of 2024. 2024Q1-3 achieved operating income of 0.375 billion yuan (YoY -6.56%), net profit to mother of -0.035 billion yuan (YoY +80.72%), after deducting non-net profit of -0.094 billion yuan (YoY +60.36%); 2024Q3 achieved revenue of 0.12 billion yuan (YoY +56.67%) in a single quarter, net of the mother Profit - -0.024 billion yuan (YoY +83.30%), after deducting non-net profit - -0.034 billion yuan (YoY +73.90%).

Comment:

1) The company's report for the third quarter of 2024 shows that the company's losses have been drastically reduced and cash flow has improved significantly. Although Hanyu Pharmaceutical still recorded losses in the third quarter of 2024, the sharp reduction in loss margin and a significant improvement in cash flow indicate that the company's operating conditions are gradually improving. Q3 2024 revenue reached 0.12 billion yuan, up 56.67% year over year, showing a strong market recovery trend. In addition, the company's net profit to mother and net profit after deducting non-net profit increased significantly, increasing by 80.72% and 60.36% respectively, mainly due to improved cost control and increased revenue from international market expansion.

2) GLP-1 has continued to be implemented overseas, and the company has achieved remarkable results in deploying the global peptide market. In terms of international business, the share of international business revenue in the first three quarters of 2024 reached 49.87%, an increase of 132.82% over the previous year.

In terms of formulations, the company has carried out strategic cooperation with international partners such as Hikma and Mullan on various peptide products such as liraglutide. These formulations have covered more than 30 countries and regions, including the United States, Canada, Germany, France, and Singapore. On August 31, 2024, Hanyu Pharmaceutical and Mullan reached an agreement on the exclusive licensing, supply and distribution of liraglutide. According to the agreement, Mulan will pay Hanyu Pharmaceutical a cooperative license fee, milestone payment, supply price, and receive a double-digit share of sales profits. In terms of APIs, the company has exported GLP-1 APIs overseas twice this year. In July 2024, DS3 RXLLC signed another contract with Hanyu Pharmaceutical to purchase GLP-1 APIs worth approximately USD 8.1 million. Furthermore, on September 26, the company's simeglutide API obtained a DMF registration number in the US, improving the company's competitiveness in the international market and having a positive impact on the company's long-term development.

3) The company actively expands its global influence and explores new growth paths. On October 8, 2024, the company reached a strategic cooperation with Carbon Cloud Intelligence and Carbon Cloud Smart Peptide. The three parties will use the three-target weight loss and hypoglycemic peptide project as an entry point to explore the application of artificial intelligence technology platforms and peptide chips in peptide drug development; at the same time, they will also combine their respective R&D resources to promote the development of foreign drug contract R&D and production outsourcing business (CDMO); in terms of commercialization, explore potential cooperation opportunities in overseas pharmaceutical markets. The company will further expand production facilities that meet FDA standards and enhance production capacity to meet growing international market demand. At the same time, the company will also continue to explore new product lines in the health field, such as functional drinks and peptide skincare products, to meet the diverse health needs of global consumers and promote the company's continued growth and consolidation of industry leadership.

Profit forecast: We expect the company's 2024-2026 revenue to be 1.069, 1.716, and 2.4 billion yuan, respectively, with year-on-year growth rates of 147.81%, 60.52%, and 39.86%, respectively, and net profit to mother of 0.075, 0.264, and 0.561 billion yuan, respectively. The year-on-year growth rates are 114.52%, 253.28%, and 112.72%, respectively, maintaining the “Highly Recommended” rating.

Risk warning: competition increases risk, risk of product sales falling short of expectations, policy risk.