According to Zhitong Finance APP, Zhongtai International released a research report stating that it has initiated coverage on LUYE PHARMA (02186) with a "Buy" rating, expecting a revenue CAGR of 7.2% for 2023-26E. The company reduced its sales expenses as a percentage of product sales revenue from 40.1% to 30.9% in the first half of the year, expecting stability in the short term, with shareholder Net income projected to increase by 50.9%, 4.6%, and 6.5% from 2024 to 2026E. The company's current valuation is significantly lower than the industry average, indicating potential for an increase. Based on a 12.0 times 2025 EPER pricing, the Target Price is HKD 2.9.

The main points of Zhongtai International are as follows:

A well-known pharmaceutical company with a broad sales network and constantly expanding product lines.

The company is a well-known pharmaceutical enterprise in Hong Kong, possessing renowned products such as Lipozene for tumors, Xuezhikang for cardiovascular issues, Siretak for central nervous system diseases, and Lisdexamfetamine patches, with a sales network covering over 21,000 hospitals domestically and over 80 countries. In recent years, high-quality products such as Baitokwei, Zanbizia, and Ruoxinlin have been launched in the oncology and central nervous system fields. It is anticipated that the heavyweight new drug for diabetes, Dolaglutide, and the drug for macular degeneration, Aflibercept, will be approved in 2025, further expanding the product line.

Stable growth in central nervous system business revenue.

The company's central nervous system drugs include schizophrenia medication Siretak, Alzheimer’s patches, and depression drug Ruoxinlin. The revenue CAGR for this Sector is expected to be 13.2% from 2023-26E, based on: 1) The high quality of Siretak, introduced from AstraZeneca (AZNUS), remains stable despite two price cuts by major domestic competitors after 20 years, indicating strong demand. This trend is expected to persist from 2024-26E. 2) The core product in the patch Sector, Lisdexamfetamine for Alzheimer’s, is the world's first generic of Novartis (NVSUS) products, with high quality and sales in multiple countries. A rapid increase in sales volume for Lisdexamfetamine is expected, with a revenue CAGR of 28.1% for the patch business from 2024-26E. 3) The new class antidepressant Ruoxinlin is expected to deliver more pleasure compared to existing products and will be included in the medical insurance catalog by the end of 2024, forecasting a rapid increase in sales.

Revenue from oncology and cardiovascular business is expected to gradually recover starting in the second half of the year.

The company's oncology drugs include Liposomal Doxorubicin for ovarian cancer, lung cancer, and breast cancer, as well as Baotuwei for prostate cancer and breast cancer, and Zandibin for small cell lung cancer. In the first half of 2024, main product Liposomal Doxorubicin's revenue from oncology drugs decreased by about 20% compared to the second half of last year due to factors such as insurance cost control. However, the company expressed that Liposomal Doxorubicin's sales have seen a moderate recovery in the third quarter, and this product is a class I recommended product in the guidelines for treating ovarian and lung cancer, with expected sales gradually recovering. The new products Baotuwei and Zandibin have excellent clinical data, and the oncology sector is expected to regain growth by 2025. Cardiovascular Business Xuezhikang was affected in the first half of the year due to quality issues with similar products from Kobayashi Pharmaceutical (4967JP), but Japan declared in November that it was a factory issue related to Kobayashi, making sales of Xuezhikang expected to rebound. European Kan is widely used in surgeries and for reducing inflammation, with rapid sales growth anticipated from 2024 to 2026.

The revenue of the digestive metabolism business is expected to regain growth starting in 2025.

The company's digestive metabolism system drugs have been on the market for a long time and are unlikely to see significant growth. However, the blockbuster diabetes drug Dulaglutide and Aflibercept for diabetic macular edema are expected to be approved by 2025, with this sector expected to regain growth starting in 2025.

Risk warning: (1) Price reductions exceed expectations; (2) New drugs cannot be launched on schedule; (3) Poor sales performance of new drugs after launch.