Xinlitai released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 1,091 billion yuan, a year-on-year increase of 22.92%; realized net profit of 200 million yuan, a year-on-year decrease of 5.06%; and realized net profit without deduction of 210 million yuan, an increase of 4.50% over the previous year.

Opinion: Revenue slightly exceeded expectations, and commercialization of innovative drugs is gradually improving.

On the revenue side, 2024Q1 grew by 22.92% year-on-year in 2023Q1 and 20.01% month-on-month in 2023Q4. The trend is positive; Xinlitan's revenue increased, and Enaro entered health insurance to accelerate hospital access; on the profit side, 2024Q1 fell 5.06% from 2023Q1, and government subsidies decreased by 15.875,000 yuan year on year; the year-on-year growth rate after deducting non-net profit was 4.50% in line with expectations. The reason we expect profit growth to be slower than revenue is to focus on academic product promotion activities, with sales expenses increasing 37.31% year over year; in addition, actively promoting R&D, R&D expenses increased 38.95% year over year.

The company is deeply involved in the field of chronic diseases, and it is expected that innovative varieties will continue to be realized in the future. The R&D pipeline covers various treatment fields such as antihypertensive, heart failure, anticoagulation, nephropathy, and orthopedics. According to the 2023 Annual Report disclosure schedule:

Product review: SAL0107 (ARB/CCB), fugliptin benzoate, S086 hypertension, and SAL0108 (ARB/diuretic) have been declared for NDA;

Phase 3 clinical trial: teriparatide completed phase 3 clinical trials for a long time; S086 chronic heart failure is being enrolled; PCSK9 monoclonal antibody completed the first case; SAL0130 is undergoing combined clinical research;

Overseas clinical trials: JK07 was approved to launch HFrEF&hFpEF phase 2 clinical trials in the US, and 24H1 is expected to start enrollment; JK08 European Phase 1/2 clinical group 7 patients were enrolled and approved for combined use of Keytruda clinical trials;

Early clinical trials: JK06 is expected to start phase 1 enrollment in 24H2, and the GLP-1 drug SAL0112 will conduct phase 1 clinical trials on diabetes and obesity.

In terms of financial data, the company's 2024Q1 sales expenses increased 37.31% year on year; accounting for 34.56% of revenue, up 3.62 pp from 30.94% in the same period of 2023, increasing the promotion of new drugs and actively promoting admission; management expenses increased 11.80% year over year, accounting for 6.56% of revenue, down 0.65pp from 7.22% of management expenses for the same period in 2023; R&D expenses increased 38.95% year on year, accounting for 9.86% of revenue, compared with 8.72% R&D expenses for the same period in 2023 Increased by 1.14pp and increased R&D efforts. Operating cash flow increased 83.54% year over year. The company performed well in various financial indicators.

The company's research and development is characterized by being deeply involved in the field of chronic diseases. Chronic disease treatment drugs have a long dosage cycle. Compared with cancer patients, chronic disease patients take medication for a longer period of time, so therapeutic drugs can form a long-term dosage trend. The release curve of the company's alisartan ester after marketing has fully proved this. It is expected that as the company's chronic disease products are approved one by one, the company is expected to form a field coverage advantage in a good competitive pattern, and the driving force of innovation is expected to be maintained for a long time. The company strengthens the construction of innovative R&D platforms, introduces high-end technical talents, continues to build innovative drug discovery technology platforms, strengthens new drug project formulation and cutting-edge technology analysis capabilities, and helps long-term development.

We believe that the influence of the company's collection has been gradually digested, and innovation investment has begun to harvest. In the future, the company's innovation and implementation will become the main driving force for performance, outlining the company's second growth curve.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 616 million yuan, 717 million yuan, and 885 million yuan respectively, with increases of 6.2%, 16.3%, and 23.5%, respectively. The corresponding PE is 52x, 45x, and 36x, respectively. The company continues to innovate in the future. We are optimistic about the company's long-term development and maintain a “buy” rating.

Risk warning: risk of R&D failure; risk of falling prices due to policy changes; risk of rising costs.