Matters:

On October 30, the company released its three-quarter report. In the first three quarters of 2024, the company achieved operating income of 7.248 billion yuan (+16.76%), net profit to mother of 1.031 billion yuan (+42.92%), and net profit of non-return to mother of 1.033 billion yuan (+27.17%). In the third quarter of 2024, the company achieved operating income of 2.12 billion yuan (+10.76%), net profit due to mother 0.283 billion yuan (+85.09%), and net profit of non-return to mother 0.268 billion yuan.

Commentary:

On the API side, stock varieties resumed the release of superimposed incremental varieties, and returned to the medium- to long-term growth trajectory. In the first three quarters of 24, the company's API revenue was 2.7 billion yuan, an increase of 13% over the previous year.

On the revenue side, we expect the company's API revenue to remain stable month-on-quarter since this year, mainly because the prices of core varieties have bottomed out and are stable month-on-month, while the company's sales volume continues to grow as new markets are developed.

On the business side, major customers and domestic markets grew significantly in the first half of the year. A number of new major customer project cooperation were launched, and new products and new businesses continued to be developed. At the same time, rapid dosage on the formulation side increased the company's self-use ratio, and the scale advantage on the manufacturing side was significantly expanded.

On the pharmaceutical side, the domestic formulation business continues to drive sector growth.

Domestic formulations are growing strongly. Domestic formulation revenue (excluding OEM and Changxing) in the first three quarters of 24 years was 2.81 billion yuan, an increase of 31% over the previous year. The good performance of the company's domestic formulation business since this year has mainly been due to the fact that the company's product echelon participated in national procurement and renewal in 23 years, and newly released products were rapidly released through the company's sales channels; at the same time, the company's market expansion on the retail and distribution side has also brought new growth opportunities to the company. As the number of domestic formulations approved by the company accelerates and becomes more difficult, the company is gradually making steady progress towards the goal of more than 100 formulation approvals.

The overseas formulation side is generally stable. Since the overseas formulation business is based on the US market, overseas pharmaceutical revenue in the first three quarters of 24 was 1.03 billion, reversing the loss in profit. The company has effectively improved its profitability through lean management and cost control in the overseas formulation business, and subsequent government orders and controlled drugs are also expected to contribute to profit flexibility. At the same time, the company's new products are also being introduced steadily.

Investment advice: Based on the company's latest operating conditions, we expect the company's net profit to be RMB 1,301, 16.07 billion and 19.93 billion yuan respectively (the previous forecast values were RMB 1,312, 16.06, and 19.94 billion yuan, respectively), up 56.7%, 23.5% and 24.0% year-on-year. Considering the company's clear and rapid growth prospects and the company's leading edge in advanced pharmaceutical manufacturing, we believe that a certain valuation premium should be appropriately given, 25 times PE over 25 years, and the corresponding target price is 27.4 yuan. Maintain a “strong” rating.

Risk warning: 1. The recovery of the company's US formulation business fell short of expectations; 2. The approval of the company's domestic formulations fell short of expectations; 3. Competition in the domestic formulation business intensified; 4. The release volume of new APIs did not meet expectations; 5. Competition in the API industry intensified.