Incident: In the first three quarters of 2024, the company achieved operating income of 1.384 billion yuan, an increase of 23.64% year on year; net profit to mother was 0.127 billion yuan, an increase of 168.79% year on year. Among them, 2024Q3 revenue was 0.462 billion yuan, up 13.23% year on year; net profit to mother was 0.051 billion yuan, up 296.25% year on year.

Profitability continues to improve, and cash on hand is abundant. The company's gross margin for the first three quarters of 2024 was 81.83%, an increase of 0.14 percentage points over the previous year. Among them, the 2024Q3 gross profit margin was 82.05%, a year-on-year decrease of 1.59 percentage points and a month-on-month increase of 0.37 percentage points. Sales/management/R&D expenses for the first three quarters of 2024 were +17.15%/+2.70%/-60.06%, respectively, and the cost rates were -3.09/-1.37/ -25.06 percentage points year-on-year, respectively. The sharp drop in R&D costs is mainly due to the fact that some new drugs have completed the critical clinical research and development stage with large R&D investment. As of the end of September 2024, the company's book capital was 1.127 billion yuan, an increase of 0.08 billion yuan over the beginning of the year.

Innovative oncology drugs have been further expanded, and the ophthalmology pipeline is progressing steadily. 1) The innovative anti-tumor drug ASK120067 tablets is a third-generation EGFR-TKI inhibitor used to treat EGFR mutant non-small cell lung cancer. The company has completed a phase 3 clinical trial of ASK120067 tablets against gefitinib with positive results, and submitted an NDA in August 2024. 2) ASKB589 injection is a monoclonal antibody targeting CLDN18.2. It is intended to be developed for gastric and gastroesophageal junction adenocarcinoma, pancreatic cancer, etc. The company has carried out multiple phase 1/2 clinical studies of ASKB589, including single drug, combination chemotherapy, combined PD-1 inhibitors and chemotherapy. Currently, phase 3 clinical trials for first-line treatment of gastric cancer are ongoing. 3) ASKG712 injection is a VEGF/ANG-2 dual-target drug used to treat fundus macular disease; it is also the second same-targeted drug in the world to enter the clinical stage after Roche Faricimab. Currently, the company is conducting clinical phase 2a studies on the treatment of neovascular age-related macular degeneration (NaMD) and phase 1 clinical studies on the treatment of diabetic macular edema.

Investment advice: The company is a leading enterprise in the field of digestion. After the collection policy, the company actively sought ways to break the game, continue to broaden the drug matrix, and strengthen self-research capabilities. At present, the company has a high brand influence in the four major fields of digestion, anti-cancer, anti-infection, and chronic diseases, and the innovative drug pipeline developed and introduced by itself is gradually entering the harvest period. In the short term, new generic drugs were launched one after another to ensure steady growth in performance. In the medium to long term, the company's anti-tumor drugs such as ASK120067 and ASKB589 have excellent commercialization prospects, and pipelines such as ASKG315, ASKG915, and ASKG712 are at the forefront of similar targets. We expect the company to achieve net profit of 0.121/0.185/0.258 billion yuan in 2024-2026, and the predicted PE corresponding to the current stock price is 106/69/50 times, maintaining a “buy” rating.

Risk warning: Risk of clinical trials falling short of expectations, risk of drastic policy fluctuations, increased risk of market competition, risk of product commercialization falling short of expectations