Key points of investment:

Losses narrowed in the first three quarters and turned losses into profits in the third quarter. In the first three quarters of 2024, the company achieved operating income of 0.567 billion yuan, a year-on-year increase of 222.88%; net profit to mother of -0.222 billion yuan, a year-on-year narrowing of 77.42%; net profit after deducting non-return to mother -0.261 billion yuan, a year-on-year decrease of 75.80%. Looking at the third quarter of a single quarter, revenue was 0.264 billion yuan, up 76.09% year on year, net profit attributable to mother was 0.003 billion yuan, after deducting non-return net profit of -0.007 billion yuan, a year-on-year narrowing of 96.39%. The increase in operating income and the improvement of cost control and overall operating efficiency narrowed the company's losses in the first three quarters, while net profit returned to mother in the third quarter.

Revenue from influenza vaccines is growing rapidly. Excluding the impact of COVID-19 vaccine returns on the results for the same period last year, revenue for the first three quarters increased 36.85% year over year, mainly due to the rapid increase in influenza vaccine revenue.

The company continues to promote the promotion and market introduction of influenza vaccine products. In the first three quarters of 2024, influenza vaccine sales revenue was 0.516 billion yuan, an increase of 39.07% over the previous year.

Cost reduction and efficiency improvements continue to advance. In the first three quarters of 2024, the company's management expenses and R&D expenses fell sharply year on year, and sales expenses increased slightly compared with the same period last year. Sales expenses were 0.196 billion yuan (+1.24% YoY), management expenses 0.117 billion yuan (YoY -37.57%), R&D expenses 0.272 billion yuan (YoY -41.02%); in the third quarter, sales expenses were 0.084 billion yuan (+28.98% YoY), management expenses 0.034 billion yuan (-35.29% YoY), R&D expenses 0.086 billion yuan (YoY -29.95%). Meanwhile, asset impairment losses decreased by 0.777 billion yuan compared to last year.

Pipeline research and development is progressing smoothly. As of the first half of 2024, PCV13i marketing applications have been accepted by the CDE; dTCP for infants and young children is in phase III clinical phase and the first three basic immunizations have been completed; Tdcp for adolescents and adults is in phase I clinical trials and clinical site work has been completed; clinical approval for Hib has been received; and adsorbed tetanus has entered phase III. The company's PBPV obtained positive initial phase I clinical results. At the same time, the recombinant shingles vaccine was simultaneously undergoing phase I clinical trials with intramuscular injection and atomized inhalation in Canada; the recombinant polio vaccine is also in phase I clinical trials.

Profit forecasting and valuation. We expect the company's revenue in 2024-26 to be 0.84 billion, 1.16 billion yuan, and 1.98 billion yuan, respectively, up 136%, 38%, and 70% year-on-year, respectively; net profit to mother in 2024-26 is -0.4 billion yuan, -0.12 billion yuan, and 0.14 billion yuan. We assume a sustainable growth rate of 3.10 to 3.70%, and a WACC value of 8.58 to 9.18%, then the company corresponds to a reasonable value range of 66.29 to 78.68 yuan/share, corresponding to a market value of 164.0 to 19.47 billion yuan, giving it a “superior to the market” rating.

Risk warning: R&D progress falls short of expectations, and commercialization progress falls short of expectations.