We believe that the company's short-term collection risks have been clarified, and that the GLP-1 series (GLP-1 oral small molecule is fourth in the world, GLP-1/GCGR/FGF21 three-target global FIC, GLP-1/GIP dual target) is expected to be licensed out, and we expect BD to significantly boost the company's valuation. Maintaining a “buy” rating considering the low impact of 24-25 year collection, intensive approval of innovative drugs, and the amount of liraglutide released.

Hubei's proprietary Chinese medicine collection contract renewal was implemented. On October 25, the Hubei Health Insurance Service Platform released the “National Proprietary Chinese Medicine Procurement Alliance Centralized Procurement Documents (First Batch Expansion Continued)” (Draft for Comments). According to the document regulations, we speculate that Huadong Pharmaceutical's Bailing capsules can win the bid by maintaining the original price during this contract renewal, and Bailing Collection risks being implemented. We expect industrial revenue to grow by more than 10% in '24, and growth is expected to accelerate in 25-26 as innovative drugs are approved one after another.

The GLP-1 series of innovative drugs is about to go overseas

The company has built a complete GLP-1 series product portfolio: 1) HDM1002: oral administration of small molecules, end of domestic phase 2 enrollment. We expect to read phase 2 data by the end of this year and enter phase 3 clinical trial at the beginning of '25 (previous phase 1 data showed a 4.9-6.8% decrease in weight from baseline); hypoglycemic domestic phase 2; 2) DR10624: GLP-1/GCGR/FGF21: domestic hypertriglyceridemia stage 2, New Zealand obesity with hypertriglyceridemia phase 1b/2a; 3: HDM1005 GLP-1/GIP, phase 1b weight loss clinical trial in China, is expected to read out phase 1 data by the end of this year and enter phase 2 clinical trials at the beginning of '25; 4) Simeglutide: Phase 3 clinical enrollment for hypoglycemia is expected to end, and pre-BLA is expected to be completed by the end of 24; weight loss obtained IND approval in September 24; 5) Liraglutide: 3M23 approved for sugar reduction, 7M23 approved for weight loss. We expect revenue of 400+ million yuan in 24 years, which is expected to double in 25 years.

Self-development+introduction to accelerate the transformation of innovative drugs in the industrial sector

In addition to GLP-1, the company continues to advance innovative pipelines such as oncology, self-immunity, and innovative medical devices: 1) Oncology: FRα-ADC (introduction, ovarian cancer) is about to be approved; EGFR-TKI myhuatinib (self-developed, lung cancer) is expected to be approved for 1H25; HDM2005 (self-developed, ROR1-ADC) phase 1 clinical; HDM2006 (self-developed, HPK1 PROTAC) and HDM2027 (new model, introduced, ADC) are being approved Bed; 2) Self-exemption: Usinu Single Anti-similar drug (introduction, psoriatic disease) 11M24 approved for marketing; Arcalyst (introduction, recurrent pericarditis and cold pyridine syndrome) is approved; HDM3016 (introduction, IL-4, prurigo nodular, and atopic dermatitis) phase 3 clinical; rofloxate cream (introduction, atopic dermatitis, and psoriasis) phase 3 bridging; 3) Innovative medical device: MB102 (introduction, glomerular filtration rate monitoring) is about to be approved.

Profit forecasting and valuation

We maintain the 24-26 net profit forecast of 3.345/4.018/4.439 billion yuan, +17.8/20.1/ 10.5% yoy. Based on the SOTP valuation, the company was valued at 87.76 billion yuan, and the corresponding target price was 50.03 yuan (previous value: 47.92 yuan, the increase was mainly due to the increase in PE of comparable commercial, medical and aesthetic companies).

Risk warning: Product sales fall short of expectations, risk of product price reduction, R&D progress falling short of expectations.