Event: the company released its mid-2021 report that its operating income in the first half of the year was 692 million yuan, an increase of 6.21% over the same period last year; its net profit was 116 million yuan, an increase of 9.84% over the same period last year; and its non-net profit was 97.9783 million yuan, up 1.39% from the same period last year.

The performance is in line with expectations, CDMO, preparations continue to release. In the first half of 2021, the company's revenue and net profit increased steadily, mainly due to the rapid growth of CDMO business and the gradual volume of preparation business driven by collected products. Of this total, the revenue of the API CDMO business reached 106 million yuan, an increase of 113.40% over the same period last year; the income of the preparation business reached 64 million yuan, an increase of 47.08% over the same period last year, of which the income of the self-developed preparation business was 17 million yuan, an increase of 3309.49% over the same period last year; and the revenue of the characteristic API business was 454 million yuan, a slight decrease over the same period last year. In a single quarter, the revenue of Q2 was 353 million yuan, down 3.42% from the same period last year, up 4.45% from the previous year, and the net profit from its mother was 66 million yuan, up 3.32% from the same period last year. The non-net profit was 53.12 million yuan, down 8.00% from the same period last year.

The gross profit margin and the rate of three items of expenses remained stable. In the first half of 2021, the company's gross profit margin was 37.08%, down 2.96pp from the same period last year, and the gross profit margin remained stable. On the one hand, the company's continuous capital investment in production safety, environmental protection, equipment maintenance and the initial scale effect of new capacity release was not obvious, on the other hand, the company's measures such as optimizing procurement strategy and process improvement effectively reduced operating costs. The sales expense rate, management expense rate and financial expense rate were 1.94%, 10.83% and 1.62% respectively, with year-on-year changes in 0.29pp,-0.73pp, 0.58pp and month-on-month changes.

27pp,-4.34pp,-3.55pp, the three expense rates basically remain stable, with a lot of month-on-month reduction, in which the decrease of management expense rate is mainly due to the decrease of equity incentive cost-sharing, and the decrease of financial expense rate is mainly due to the decrease of RMB appreciation.

CDMO, preparations continue to develop, API varieties, customers continue to enrich. 1) accelerate the layout of CDMO business to build a growth point for future performance. The company has signed a 10-year CDMO strategic cooperation agreement with Mershadong in the fields of pet medicine, veterinary medicine and animal health, and has started the research and development of three products so far. Xuancheng Minohua, as an important service platform for the company's CDMO business, the utilization rate of 2021H1 capacity has exceeded 50%, with a net profit of more than 4.34 million yuan. 2) the preparation business actively implements the strategy of "technology transfer + independent declaration + domestic MAH cooperation", collection and collection of varieties continue to release, a number of self-developed and cooperative preparation varieties are expected to be approved and put on the market one after another, and the preparation transformation is accelerated. The fourth batch of the company adopted the bid-winning varieties pregabalin capsules and perindopril tert-butylamine tablets in May 2021. By the end of June, the shipments of perindopril tert-butylamine tablets and pregabalin capsules had exceeded 56% and 47% of the first year quantity, respectively, and the volume was obvious. By the end of June 2021, the company has achieved a total of 13 customized production service products for European preparations, and a total of 8 strategic joint development preparation products are under CDE review in China. The approval of consistency evaluation of self-developed preparation products such as apisaban tablets and isoniazid tablets is progressing smoothly, and it is expected that the products will be approved and listed in succession from the second half of the year to 2022. Ciglitine phosphate tablets and moxifloxacin hydrochloride tablets have passed the BE study and are scheduled to be submitted for CDE review in the second half of the year. Two R & D projects such as veglitine tablets are about to enter the BE pilot phase, and another 14 projects are under development at the same time. It is expected that 8-10 new preparation varieties will be established in 2021, 3-4 BE trials will be completed in the second half of the year, and 3-4 varieties will be submitted for domestic registration and review. 3) APIs welcome new production capacity, new customers and new varieties. In terms of production capacity, the expansion of the three API production bases has increased the production capacity of about 2500 tons of APIs and intermediates, laying the foundation for future growth. Xuancheng Minohua has entered the volume stage. Customers, on the basis of major customers KRKA, continue to open up new customers and new markets. In terms of products, the company has achieved more than 20 international and domestic commercial varieties, focusing on the core treatment field. Valsartan, esomeprazole magnesium, moxifloxacin hydrochloride, sioglitine phosphate, rosuvastatin calcium and other new processes or new products are being developed and registered at an accelerated pace.

Profit forecast and investment advice: we expect the company's income from 2021 to 2023 to be 16.38,20.57 and 2.62 billion yuan, up 37.2%, 25.6% and 27.3% over the same period last year, and the net profit from home is 2.10,2.59 and 338 million yuan, an increase of 25% over the same period last year.

3%, 23.7%, 30.3%; the corresponding EPS is 1.40,1.73,2.26 yuan. The current share price of the company corresponds to 25 times PE in 2021, considering that the company is in the stage of expansion and upgrading of APIs and accelerated transformation of preparations, maintaining a "buy" rating.

Risk prompt events: environmental risk, quality risk, risk of price fluctuation of APIs and intermediates, risk that product research and development does not meet expectations, risk of delayed or untimely updating of public information.