Performance reviews:

In the first three quarters of 2024, the company achieved operating income of 3.088 billion yuan, a year-on-year decrease of 1.72%, a year-on-year decrease of 0.606 billion yuan, a year-on-year decrease of 27.82%, net net profit of 0.548 billion yuan, a year-on-year decrease of 33.41%, and net cash flow from operating activities of 1.055 billion yuan, a year-on-year decrease of 9.91% and EPS of 0.37 yuan, a year-on-year decrease of 28.85%. In the third quarter, the company achieved operating income of 0.945 billion yuan, a year-on-year increase of 12.79%, a year-on-year net profit of 0.201 billion yuan, a year-on-year decrease of 6.54%, after deducting non-return net profit of 0.18 billion yuan, a year-on-year decrease of 15.29%.

Q3 Revenue continued to grow, and profit decline narrowed

Affected by multiple factors such as fluctuations in the API cycle and domestic formulation collection, the company's revenue growth rate fluctuated from 2023Q3. After three quarters of gradual clearance, 2024Q2 resumed growth. The growth trend continued in Q3, and the revenue growth rate reached 12.79%, achieving positive growth for two consecutive quarters. The profit side showed a simultaneous recovery trend, and the decline in Q3 narrowed to single digits. The company's gross margin showed a steady upward trend. The 2024Q3 gross profit margin was 44.1%, up 2.3 pp from the previous month. In terms of expense ratios, sales expenses decreased year-on-year in the first three quarters, and management expenses and R&D expenses increased slightly year-on-year. Affected by exchange factors, financial expenses increased year-on-year.

Disturbing factors are gradually being clarified, and the biosimilar product pipeline helps start a new growth cycle

Continued transformation, the strategic layout of high-end complex formulations and biosimilar product pipelines has entered the fulfillment period:

The introduction of adalimumab biosimilar drugs in the first half of 2024 gradually contributed to revenue. The high-end complex preparation albumin paclitaxel is expected to be approved for marketing in the near future, and the insulin product pipeline continues to advance, helping start a new growth cycle for high-end biologics. At the same time, overseas non-heparin formulations maintained rapid growth. In the first half of 2024, various products such as reganosene injections, palonosetron hydrochloride injections, dacarbazine for injection, etibatide injections, and voriconazole for injection were approved by the FDA. As the sales pipeline for injections in the US continues to expand, Meitheal's localized sales advantage in North America continues to be strengthened, and the overseas formulation sector continues to drive the company's performance growth.

Short-term disturbances in domestic formulations and APIs are expected to clear up: the impact of the collection of core varieties in the company's domestic formulation business segment weakens marginally. At the same time, risks in the heparin API business have been released. Currently, API prices and export volumes are at historically low levels, showing a moderate recovery trend. The disturbances on both sides are expected to gradually clear up.

Investment advice

We maintain the forecast values of the company's EPS of 0.54 yuan, 0.70 yuan, and 0.91 yuan respectively for 2024-2026. The current stock price is 27.64, 21.27, and 16.34 times PE for 2024-2026, respectively, maintaining the company's “gain” rating.

Risk warning

Risk of price fluctuations of heparin APIs;

Inventory continues to account for the risk of impairment;

Product quality control risks;

geopolitical risk;

Risk of drug development failure and commercialization falling short of expectations;