Event: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 22.786 billion yuan, a year-on-year decrease of 41.98%; net profit to mother of 2.151 billion yuan, a year-on-year decrease of 67.07%; after deducting non-return net profit of 2.143 billion yuan, a year-on-year decrease of 66.41%. In Q3, in a single quarter, the company achieved operating income of 4.528 billion yuan, a year-on-year decrease of 69.46%; a net profit loss of 0.084 billion yuan to mother; and a net profit loss of 0.087 billion yuan after deducting non-return to mother. The decline in the company's performance in the first three quarters was mainly due to the fact that the company's marketing work in some regions and products did not meet expectations, and sales volume of major products declined compared to the same period last year.

The company's gross margin and net profit margin both declined in the first three quarters. In the first three quarters of 2024, the company's gross margin was 27.23%, down 1.04pct year on year; the net margin was 9.44%, down 7.19pct; the period expense ratio was 13.14%, up 6.00pct; of these, the sales expenses ratio was 8.50%, up 3.80pct; the management expense ratio was 1.35%, up 0.65pct; the R&D expense ratio was 3.05%, up 1.40pct year on year; the financial expense ratio was 0.24%, up 0.15 pcts year on year.

Sales of the HPV vaccine are under pressure, pending the release of the shingles vaccine. In the first three quarters of 2024, sales of the company's HPV vaccine declined year-on-year, but it still maintained a high market share; the two-dose vaccination procedure for women aged 9-14 (0,6-12) of the nine-valent HPV vaccine was approved by the State Drug Administration in January this year, providing more women of appropriate age with more economical and convenient product choices. In addition, the recombinant shingles vaccine, the company obtained the first batch of issuance certificates in March of this year, and a total of 1.6069 million doses were issued in batches in the first half of 2024. By the end of August, the recombinant shingles vaccine had covered more than 20,000 end users across the country, and the breadth and depth of coverage had increased significantly. Currently, the vaccination penetration rate of the shingles vaccine in China is still low. As the company focuses on promoting the marketing of the shingles vaccine, this product is expected to gradually contribute to increased performance.

Emphasis is placed on R&D investment, and the independent product matrix is expected to gradually be enriched. In 2024, the company efficiently promoted the research pipeline, and several research projects made positive progress: the quadrivalent norovirus vaccine entered phase III clinical trials in July, and the development progress was at the forefront of the industry; the 26-valent pneumonia conjugate vaccine entered phase I/II clinical trials in August; the quadrivalent influenza vaccine (pre-encapsulated packaging) has passed registration site verification and is in the technical review stage; the quadrivalent influenza vaccine (ZFA02 adjuvant) was clinically approved in October; the quadrivalent influenza vaccine (children's type), trivalent influenza vaccine, and human diploid rabies vaccine were registered for clinical use in October; the production of quadrivalent influenza vaccine (children's type), trivalent influenza vaccine, and human diploid cell rabies vaccine all applied for registration 10 Moon It was accepted. Furthermore, up to now, the monkeypox vaccine independently developed by the China Report Company has obtained data related to animal tests, pharmacy, and toxicology tests. Pre-clinical research has basically been completed, and clinical trial communication of the new drug will soon be submitted to the State Drug Administration. With the hierarchical commissioning of the projects under development, the company's independent product matrix will gradually be enriched.

Investment advice: We expect the company's revenue growth rates from 2024 to 2026 to be -45.8%, 14.0%, and 13.3%, respectively, with net profit growth rates of -70.1%, 37.9%, and 36.7%, respectively. The corresponding EPS is 1.01 yuan, 1.39 yuan, and 1.90 yuan respectively, and the corresponding PE is 28.2 times, 20.5 times, and 15.0 times, respectively; with an investment rating of -A, the target price for 12 months is 34.69 yuan, corresponding to a dynamic price-earnings ratio of 25 times 2025.

Risk warning: Vaccine marketing and sales fall short of expectations, actual purchase orders for agent products fall short of expectations, and new product development progress falls short of expectations.