Incident: The company released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 1.038 billion yuan (+7.15%), net profit attributable to shareholders of listed companies was 17.18 million yuan, and net profit not attributable to mother was 24.24 million yuan.

Overseas business ushered in breakthroughs, and high growth is expected to continue. In the first 3 quarters of 2024, the company's overseas revenue was 0.149 billion yuan (+47.16%), of which overseas revenue in 2024Q3 was 59 million yuan, an increase of 93.29% over the previous year. We think it was mainly due to: (1) the introduction of the product albumin paclitaxel obtained listing approval from the European Commission in July 2024, achieved the first batch in August, and EU sales orders continued to increase; (2) self-produced products such as EPO, GC, and Changlekang continued to expand more international markets; (3) introducing products into emerging markets Sales and registration progress accelerated, such as single shipment of infliximab to Peru in the 3rd quarter. Currently, the company continues to strengthen its overseas market depth and establish a new German subsidiary, which will strongly promote the sale of albumin paclitaxel in the EU and the UK. Currently, it is in short supply in most regions of the EU. We believe that albumin paclitaxel is expected to continue to grow rapidly. In terms of other products, adalimumab completed on-site GMP inspections by the Philippine Drug Administration, bevacizumab completed an online audit by the Pakistan Drug Administration, and liraglutide completed on-site GMP inspections by the Colombian Drug Administration. These varieties are expected to be a new increase in overseas business performance in the next 1-3 years.

Domestic business has fluctuated in the short term and is expected to remain stable in the long term. In the first 3 quarters of 2024, the company's domestic business revenue was 0.889 billion yuan, up 2.47% year on year. Of these, revenue for the 3rd quarter was 0.219 billion yuan, down 33.23% year on year. We believe that product prices declined to a certain extent mainly due to the implementation of interferon collection results. At present, many key products of the company's domestic formulations have been included in the collection, and the price reduction has been fully digested. In the future, on the basis of a steady increase in prices, the domestic business is expected to remain steady.

Profitability continues to improve, and profit margins are expected to gradually increase. Compared with the same period last year, the company's cost-side optimization was obvious; R&D expenses decreased year-on-year, mainly due to a decrease in clinical and outsourcing expenses compared to the same period last year; sales expenses declined year-on-year, mainly due to lower product cost rates after collection and an increase in the company's operating efficiency. We believe that with the growth of the overseas formulation business, the company's profit side still has great potential to improve.

Profit forecasting and valuation. According to the operating conditions for the first three quarters of 2024, we adjusted the profit forecast. We expect the company's revenue from 2024 to 2026 to be 1.349 billion yuan, 1.721 billion yuan, and 2,087 billion yuan, respectively, with year-on-year growth rates of 7.1%, 27.6% and 21.3%, respectively; net profit to mother is 0.03 billion yuan, 0.097 billion yuan, and 197 million yuan, respectively. Based on the closing price on October 29, the corresponding PE is 119.1 million yuan Times, 37.0 times, and 18.1 times maintain the “gain” rating.

Risk warning: The procurement price reduction for core products exceeded expectations; the release and approval progress of overseas sales products fell short of expectations.